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THE TRUE NATURE OF VALUE 



THE TRUE NATURE 
OF VALUE 




Chicago: The University of Chicago Press 

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(LIBRARY of COiVL.-ZlSS 
i Two Copies Receives 

! DEC 14 i907 

Ooyynciit entry 

Jfru: G '901 

CLASS/* XXc, 1^, 
i COP^r B. 



Copyright 1907 By 
The University of Chicago 



Published December 1907 



Composed and Printed By 

The University of Chicago Press 

Chicago, Illinois, U. S. A. 



PREFACE 

It was not until the early 70' s, when the money 
question had become a political issue of suffi- 
cient gravity to overshadow other questions 
growing out of the Civil War, that it had more 
than a passing interest for the average citizen 
and voter. Prior to that time I had vaguely 
shared, or at least had not rejected, the popular 
belief that the premium on gold was largely or 
wholly due to the speculative manipulations, or 
traitorous machinations, of a powerful but un- 
scrupulous group of rebel sympathizers on the 
stock exchange. Indeed, I think I was at one 
time disposed to agree with those who advocated 
punishment for those who were responsible for 
this apparent evil. I say " apparent" evil 
because I was so situated that I could not help 
perceiving that as the premium on gold rose or 
fell, staple products, both agricultural and 
manufactured, domestic and foreign, tended to 
advance or decline proportionately. While the 
popular tendency was to regard each increase 
in the premium on gold as objectionable, ad- 
vances in the prices of other products, especially 



Vl PREFACE 



those of domestic origin, obviously had their 
compensations. 

Finally, it began to dawn upon my mind that 
there might be some truth in the contention of 
those who maintained that the premium on gold 
was largely, if not wholly, due to the fact that 
its value, like that of other commodities, was 
expressed in terms of a depreciated currency, 
and that it was not gold that went up but cur- 
rency that went down, and vice versa. Evi- 
dently there were two sides to the money ques- 
tion, and I became imbued with a desire to 
investigate it more thoroughly. 

I soon arrived at the conviction that since 
money was universally accepted as the standard 
of value, the only way to have a perfect 
understanding of the money question was to 
discover exactly what was meant by the term 
"value." The most common definitions of this 
term at that time were "power in exchange" 
and "purchasing power," but they did not 
make clear what constituted or conferred value, 
nor what measured it. I accordingly read work 
after work by the leading authors on the subject, 
but without being able to find any exposition 
of the nature of value that appealed to me as 
correct or complete, or one that furnished a 
practical working-theory applicable to the busi- 



PREFACE vii 



ness affairs of every-day life — a test, by the way, 
by which every theory of value will ultimately 
have to stand or fall. I was thus thrown upon 
my own resources and compelled to analyze the 
matter for myself. The theory of value that 
follows is the result of a practically uninterrupted 
study of the subject for a period of over thirty 
years. 

As this book is designed to assist those who, 
like myself, wish to understand the money prob- 
lem and to arrive at a correct solution of the 
various social problems that confront us, it has 
been my constant endeavor to put my theories 
into the simplest possible form and language. 

Since there are some points of resemblance 
between my exposition of this theory and that 
of Bastiat, a French author who, it appears, 
formulated a service theory of value during the 
last century, I desire to explain, in justice to 
myself, that my conclusions were reached quite 
independently of any knowledge of Bastiat 's 
theories or writings. Indeed, it is only recently 
that my attention was called to the fact that this 
writer, neglected or forgotten by political econo- 
mists of the present day, had formulated a 
service theory somewhat similar to mine, though 
I am told, far less complete. Every line of my 
work, from chap, ii on, was written and put in 



viii PREFACE 



its present form before I learned of the contribu- 
tions of Bastiat quoted in the introductory 
chapter. These quotations were brought to my 
attention and compiled for me by a distinguished 
writer on economics and professor in one of our 
great universities to whom I had submitted the 
result of my labors, and to whom I am greatly in- 
debted for criticism and suggestions as to its 
arrangement for publication. My definite con- 
ception of Objective Hindrances as the measure 
of that service utility that alone constitutes 
Value should relieve me of the charge of ambi- 
guity that I learn has been brought against the 
Service Theory as presented by Bastiat — a 
defect, by the way, that, judging by my own 
experience and his recognized genius, would, 
but for his premature death, have been remedied 
by him. 

In my judgment the theory presented by me 
in the following pages explains much that has 
heretofore seemed vague and inexplicable, and 
it throws much light not only on economic, but 
on social, and ethical questions. I shall show that 
equity demands that compensation should always 
be in proportion to the service rendered, a result 
that is automatically secured whenever free 
competition is established; but that human 
greed impels every man to strive for a monopoly 



PREFACE ix 



which would enable him to demand and secure 
compensation, not on the equitable basis of the 
utility of his service in supplying a product, 
— that is, in rendering it available for use — 
but on the inequitable basis of the utility of the 
product itself. 

Chap, xiii contains a practical application 
of the Service Theory to a discussion of Metallic 
and Paper Money. The perfect adaptedness 
and entire sufficiency of this theory as a means 
of throwing needed light upon obscure phases 
of this subject should be manifest to the unpre- 
judiced reader. If this chapter seems to con- 
tain repetitions of matter that has necessarily 
appeared in preceding chapters, it is not by over- 
sight but by intention, in order that the discus- 
sion of money, the unit or standard of value, 
might be complete in itself. Incredible as it 
may seem to those who are now resting in 
fancied security, the " money question," which 
in every country and in every age has come, and 
in the very nature of things must come, to the 
surface in times of great financial stress, can 
never be permanently settled until a true con- 
ception of the nature of that value of which it 
is the recognized standard has been conclusively 
established. 

In 1902 I sought and obtained permission to 



PREFACE 



present my views on the question of value before 
the American Economic Association at its annual 
meeting in Philadelphia, on December 28; but 
the paper I read on that occasion was only a 
brief summary of the subject as far as then 
worked out. 

Confident that my theory will stand every 
test that can be applied to it, I now submit it 
to the public. 

Rufus Farrington Sprague 



Greenville, Mich. 
Oct. 21, 1907 



CONTENTS 

IAPTER PAGE 

I. Introduction i 

§ i. Aim to Explain Exchange Value . . 3 

§ 2. Bastiat's Service Theory .... 3 

II. Definitions 15 

§ 1. Wealth, Value 17 

§ 2. Utility, Discomfort 18 

§3. Hindrance, or Difficulty of Attainment, 

Cost 20 

§4. Production 21 

§5. Gain, Profit 22 

III. Production 23 

§ 1. Effective and Ineffective Production . 25 

§ 2. Illustration of Isolated Production . 26 

§ 3. Social Production 28 

§ 4. Production Renders Products Available. 30 

IV. Utility of the Service Distinguished 

from Utility of the Product . . ^ 

§ 1. The Measure of Utility of Service in 

Cost-Impairment 35 

§ 2. Distinction between Utility of the Serv- 
ice and Utility of the Product ... 37 

§ 3. Intensity of the Need Unknown in Ex- 
change 39 

§ 4. Utility of the Product and Exchange 

Value 43 

V. The Subjective and Objective Ele- 
ments in Production 47 

§ 1. Obstacles to Acquisition Distinguished 

from Cost 49 

xi 



xu CONTENTS 



§ 2. Subjective Energy Working against the 

Objective Resistance of Nature . . 50 
§ 3. The Standard for Comparing Objective 

Hindrances : 53 

VI. Cost a Double Variable 57 

§ 1. Service Measured by Cost Averted . . 59 

§ 2. Relations between Cost and Hindrance 60 

§ 3. Personal Capacity 64 

§ 4. Profits 65 

VII. Value of Service Directly Affected 

by Variations in Hindrance . . 69 
§ 1. Variations in Personal Costs Have No 

Effect on Utility of Service .... 71 

§ 2. Illustration 73 

§ 3. Variations in Hindrance Directly Influ- 
ence Utility of Service 75 

§ 4. Golden Rule 77 

VIII. Free Competition and Personal Cost 81 
§ 1. Competition Allows Greatest Well- 
being 83 

§ 2. Competition Gives Equitable Basis of 

Exchange 84 

§ 3. Exchange under Normal Conditions . 86 

§ 4. Normal Groups 88 

§ 5. Profit under Normal Conditions. . 91 
IX. Law of Exchange Value .... 95 
§ 1. Value not Based on Utility of Products. 97 
§ 2. Utility of the Service Varies with Varia- 
tions in Hindrances 99 

§ 3. Final Law of Exchange Value . . . 101 

X. Influence of Capital 105 

§ 1. Varying Personal Capacities . . . 107 



CONTENTS xm 



§ 2. Monopoly over Improved Instruments 

Increases Personal Capacity . . . 109 

§3. Interest 112 

§ 4. Justification of Interest as Due to Bene- 
fits Conferred 114 

§5. Capital Reduces Hindrance. . . . 116 

XI. Rent 123 

§ 1. Water Obtained at Different Difficul- 
ties of Attainment 125 

§ 2. Time Element 126 

§ 3. Land Tax to Equalize Opportunity — 

Henry George 128 

§ 4. Case of a Feudal Lord 130 

§ 5. Private Monopoly of Water Supply . 132 
§ 6. Effect of Improvements to Reduce 

Rent 135 

XII. Money : 139 

§ 1. Need of a Unit to Measure Hindrances 141 

§ 2. A Common Denominator of Hindrances 143 
§3. The Particular Kind of Hindrance 

Chosen as a Unit Immaterial . . . 145 

§4. Utility of Money 147 

§ 5. Functions of Money as a Unit of Diffi- 
culty of Attainment 149 

§ 6. The Monetary Unit, Normal Cost, and 

Free Competition 152 

XIII. Metallic and Paper Money . . . 159 

§ 1. Money a Unit of Price. Hindrance . 161 
§ 2. Value not Inherent in the Precious 

Metals 164 

§ 3. Why Gold and Silver Change in Their 

Relative Values , . 165 



xiv CONTENTS 



§ 4. Principle Determining the Value of 

Metallic Money 167 

§ 5. Coinage, Seigniorage, and Value of 

Current Coins 169 

§6. Bimetallism 171 

§7. Paper Promises to Pay 173 

§8. Depreciation of Paper Money . . . 175 



CHAPTER I 
INTRODUCTION 

§ i. It should be clearly understood at the 
beginning that the purpose of this study is to 
ascertain the true principles regulating exchange 
value, as they work in the markets of today. 
However differently the case may here be pre- 
sented from that found in modern treatises, the 
object aimed at is not the less an explanation of 
exchange value. 

Since the value of the service is fully insisted 
upon in the following exposition, it seems best 
to present herewith Bastiat's service theory, in a 
brief but careful way, in order that the differences 
and resemblances may be noted by the reader. 
My own analysis, however, which is presented 
in these pages, was fully worked out, it is needless 
to say, without any knowledge of Bastiat's 
treatment. 

§ 2. Bastiat's service theory was propounded 
in his Harmonies Economiques, as the pivotal 
part of his whole conception of the science of 
political economy. 1 It will be best to give this 
theory in his own words: 

1 The quotations have been taken from Stirling's translation: 
Harmonies 0} Political Economy, by Frederic Bastiat, translated 

3 



TRUE NATURE OF VALUE 



Let us analyze the co-operation of nature of which 
I have spoken. Nature places two things at our disposal 
— materials and forces. 

Most of the material objects which contribute to the 
satisfaction of our wants and desires, are brought into 
the state of utility which renders them fit for our use 
only by the intervention of labour, by the application of 
the human faculties. But the elements, the atoms, if 
you will, of which these objects are composed, are the 
gifts, I will add, the gratuitous gifts, of nature 

It is very evident, that if man in an isolated state must, 
so to speak, purchase the greater part of his satisfactions 
by an exertion, by an effort, it is rigorously exact to say 
that prior to the intervention of any such exertion, any 
such effort, the materials which he finds at his disposal 
are the gratuitous gifts of nature 

I add now, and by anticipation, that things begin to 
possess value only when it is given to them by labour. I 
intend to demonstrate afterwards that everything which 
is gratuitous for man in an isolated state is gratuitous 
for man in his social condition, and that the gratuitous 
gifts of nature, whatever be their utility, have no value. 
I say that a man who receives a benefit from nature 
directly and without any effort on his part, cannot be 
considered as rendering himself an onerous service, and, 
consequently, that he cannot render to another any 
service with reference to things which are common to all. 

from the French, with a notice of the life and writings of the 
author, by Patrick James Stirling, London, John Murray, i860, 
8vo, pp. xl+298. The sixth volume of (Euvres completes de 
Frederic Bastiat, Guillaumin et Cie, Paris, 1870, contains the 
Harmonies unabridged. The (Euvres choisies, i2mo, edited by 
Felix Alcan, omits the whole discussion of value, and is of little use. 



INTRODUCTION 5 



Now, where there are no services rendered and received, 
there is no value. 

All that I have said of materials is equally applicable 

to the forces which nature places at our disposal 

But these natural forces, in themselves, and apart from 
all intellectual or bodily exertion, are gratuitous gifts of 
Providence, and in this respect they remain destitute of 
value through all the complications of human trans- 
actions 

The irresistible tendency of the human mind, stimu- 
lated by self-interest, and assisted by a series of discov- 
eries, is to substitute natural and gratuitous co-operation 

for human and onerous concurrence What is the 

result of it ? This, that in every product the gratui- 
tous element tends to take the place of the onerous; that 
utility, being the result of two collaborations, of which one 
is remunerated and the other is not, Value, which has 
relation only to the first of these united forces, is dimin- 
ished, and makes room for a utility which is identically 
the same, and this in proportion as we succeed in con- 
straining nature to a more efficacious co-operation. So 
that we may say that mankind has as many more satis- 
factions, as much more wealth, as they have less value. 
Now the majority of authors having employed these 
three terms, utility, wealth, value, as synonyms, the 
result has been a theory which is not only not true, but 
the reverse of true 2 

Thus, the definition of the word Value, in order to be 
exact, must have reference not only to human efforts, but 
likewise to those efforts which are exchanged or exchange- 
able. Exchange does more than exhibit and measure 



2 Stirling's translation, pp. 61-63. 



TRUE NATURE OF VALUE 



values — it gives them existence. I do not mean to say 
that it gives existence to the acts and the things which are 
exchanged, but it imparts to their existence the notion of 
value. 

Now, when two men transfer to each other their pres- 
ent efforts, or make over mutually the results of their 
anterior efforts, they serve each other; they render each 
other reciprocal service. 

I say then, Value Is the Relation of Two Serv- 
ices EXCHANGED. 3 

The materials and forces given by God to man gra- 
tuitously, at the beginning, have continued gratuitous, 
and are and must continue to be so through all our trans- 
actions; for in the estimates and appreciations to which 
exchange gives rise, the equivalents are human services, 
not the gifts of God. 4 

As Mr. Cairnes 5 has shown, Bastiat added 
nothing new in asserting the gratuitousness of 
the gifts of nature; but he failed to understand 
that even a gratuitous gift of nature might be 
limited in supply and thus acquire value; he 
failed to see that a gratuitous gift might not be 
in such abundance as to be common to all. 
Hence, he was in error in insisting that only 
"that portion of utility which is due to human 
labour becomes the object of exchange." This 
theory would not explain why a diamond picked 
up on the seashore might bear a high price. 

3 Stirling's translation, pp. 107, 108. 4 Ibid., p. 221. 

s Essays, IX, pp. 327-37. 



INTRODUCTION 



With Bastiat, however, value depends upon 
the service rendered, and varies with the magni- 
tude of the service; and all exchange is an 
"exchange of services." Hitherto, Bastiat has 
excluded gratuitous gifts of nature from having 
any influence on value; but by his use of the 
word " service" he introduces under it all the 
omitted elements of value other than human 
effort. The ambiguity, or equivocal meaning 
of "service," has thus been pointed out by 
Cairnes as covering up a gross fallacy. But 
what Bastiat has to say on this point is contained 
in the following passages : 

To make an effort in order to satisfy another's wants 
is to render him a service. If a service is stipulated in 

return, there is an exchange of services If the 

exchange is free, the two services exchanged are worth 

each other Less effort implies less service, and 

less service implies less value. 6 .... 

I take a walk along the sea-beach , and I find by chance 
a magnificent diamond. I am thus put in possession 
of a great value. Why ? Am I about to confer a great 
benefit on the human race ? Have I devoted myself to a 
long and laborious work ? Neither the one nor the other. 
Why, then, does this diamond possess so much value ? 
Undoubtedly because the person to whom I transfer it 
considers that I have rendered him a great service, — all 
the greater that many rich people desire it, and that I 
alone can render it. 7 

6 Stirling's translation, pp. 44, 45. 7 Ibid., p. 113. 



TRUE NATURE OF VALUE 



The reason for a natural gift of nature having 
value is thus the power of the object to satisfy a 
widely felt want, coupled with the limitation set 
by nature to objects possessing this capacity. 
And yet Bastiat had earlier denied value to 
gratuitous gifts of nature. Again, while saying 
he finds value wherever an exchange of services 
takes place, he also makes the following ad- 
mission regarding gratuitous gifts of nature: 
Frequently a material substance; sometimes forces fur- 
nished gratuitously by nature; always human services 
interchanged, measuring each other, estimating, appre- 
ciating, valuing one another, and exhibiting simply the 
result of that valuation — or Value. 8 

In connection with the value of land he sets 
forth his doctrine on this particular point more 
fully: 

[Land] has value, in fact, because it can be no longer 
acquired without giving in exchange the equivalent for 
this labour [the labour expended upon it]. But what I 
contend for is, that this land, on which its natural pro- 
ductive power had not originally conferred any value, 
has no value yet in this respect. This natural power, 
which was gratuitous then, is gratuitous now, and will be 
always gratuitous. We may say, indeed, that the land 
has value, but when we go to the root of the matter we 
find, that what possesses value is the human labour which 
has improved the land, and the capital which has been 
expended on it. 9 

8 Stirling's translation, p. 124. 9 Ibid., pp. 249, 250. 



INTRODUCTION 



Yet, in regard to land on which nature has 
conferred desirable fertility, he presents the 
case of a possible objector, and in the paragraph 
next following he gives his answer: 

Everyone [says the objector] who purchases a land 
estate examines its quality, and pays for it accordingly. 
If, of two properties which lie alongside of each other, the 
one consists of a rich alluvium, and the other of barren 
sand, the first is surely of more value than the second, 
although both may have absorbed the same capital, and 
to say truth, the purchaser gives himself no trouble on 
that score 

The answer to the objection now under consideration 
is to be found in the theory of Value explained in the 
fifth chapter of this work [Harmonies], I there said that 
value does not essentially imply labour; still less is it 
necessarily proportionate to labour. I have shown that 
the foundation of value is not so much the pains taken 
by the person who transfers it as the pains saved to the 
person who receives it; and it is for that reason that I 
have made it to reside in something which embraces these 
two elements — in service. I have said that a person may 
render a great service with very little effort, or that with 
a great effort one may render a very trifling service. 
The sole result is, that labour does not obtain necessarily 
a remuneration which is always in proportion to its in- 
tensity, in the case either of a man in an isolated condition, 
or of man in a social state. 10 

This exposition is criticized by Cairnes in that 
Bastiat selected the term "service" expressly 



t° Ibid., pp. 255, 2 5 6 - 



io TRUE NATURE OF VALUE 

because its meaning was equivocal; for the 
latter is shown to hold that value depends upon 
other conditions than human effort — such as the 
utility of the object, the limitation of its supply, 
or the superiority of some agents furnished by 
nature over others. And here Bastiat falls 
away from any theory original to himself, and 
accords more or less with the exposition of value 
given by many other authors. His purpose in 
desiring to show that, under a regime of freedom, 
all exchanges were " services for services," was 
to make an argument in favor of the essential 
justice of all that takes place in the industrial 
world. This, however, could not logically be 
done by taking refuge under an equivocal term, 
"service." He tried to make the term connote 
not only a benefit conferred upon another, but 
also "a moral judgment on the facts to which 
it was applied." 11 

It would be well for our purposes to report in 
further detail the working of Bastiat's theory 
of service as a regulator of value. 12 

A multitude of circumstances may augment the rela- 
tive importance of a Service. We find it greater or less, 
according as it is more or less useful to us — according as a 
greater or less number of people are disposed to render it 
to us — according as it exacts from them more or less 

11 Cairnes, op. cit., p. 342. 

12 The gist of it is to be found in Stirling, pp. 106-26. 



INTRODUCTION II 



labour, trouble, skill, time, previous study, — and accord- 
ing as it saves more or less of these to ourselves. Value 
depends not only on these circumstances, but on the judg- 
ment we form of them; for it may happen, and it happens 
frequently, that we esteem a service very highly because 
we judge it very useful, while in reality it is hurtful. 13 

If, in laying down the general principle, that Utility 
is the foundation of Value, you mean that the Service 
has value because it is useful to him who receives it and 
pays for it, I allow the truth of what you say. It is a 
truism implied in the very word service. 

But we must not confound the utility of the air with 
the utility of the service [which forces air into a diving bell]. 
They are two utilities distinct from each other, different 
in nature, different in kind, which bear no proportion to 
one another, and have no necessary relation. There are 
circumstances in which, with very slight exertion, by 
rendering a very small service, or saving verv little 
trouble, I may bring within the reach of another an 
article of very great intrinsic utility. 14 

Nature has so constituted me that I must die if I am 
deprived of an opportunity, from time to time, of quench- 
ing my thirst, and the well is a league from the village. 
For this reason, I take the trouble every morning to fetch 
the water of which I have need, for in water I have recog- 
nized those useful qualities which are calculated to assuage 
the suffering called thirst. Want, Effort, Satisfaction — 
we have them all here. I have found Utility — I have 
not yet found Value. 

But, as my neighbour goes also to the fountain, I say 
to him — "Save me the pains of this journey — render me 

I 3 Stirling, op. cit., p. 109. n Ibid., p. in. 



12 TRUE NATURE OF VALUE 

the service of bringing me water. During the time you 
are so occupied, I shall do something for you, I shall teach 
your child to spell." This arrangement suits us both. 
Here is an exchange of two services and we are enabled 
to pronounce that one is worth the other. The things 
compared here are two efforts, not two wants and two 
satisfactions; for by what common standard should we 
compare the benefit of drinking-water and that of learning 
to spell. 15 

We may say with propriety that water is useful, because 
it has the property of allaying thirst; and it is the service 
which has value, because it is the subject of a convention 
previously debated and discussed. So true is this, that 
if the well is brought nearer, or removed to a greater 
distance, the Utility of the water remains the same, but 
its Value is diminished or increased. Why ? Because the 
service is less or greater. The value, then, is in the 
service, seeing that it is increased or diminished accord- 
ing as the service is increased or diminished. 16 

I give utterance to no paradox when I affirm that 
Utility and Value, so far from being identical, or even 
similar, are ideas opposed to one another. Want, Effort, 
Satisfaction: here we have man regarded in an Economic 
point of view. The relation of Utility is with Want and 
Satisfaction. The relation of Value is with Effort. 
Utility is the Good, which puts an end to the want by the 
satisfaction. Value is the Evil, for it springs from the 
obstacle which is interposed between the want and the 
satisfaction. But for these obstacles, there would have 
been no Effort, either to make or to exchange; Utility 
would be infinite, gratuitous, and common, without 

j s Sterling, op. cit., p. 112. > 6 Ibid., p. 113. 



INTRODUCTION 13 

condition, and the notion of Value would never have 
entered into the world. In consequence of these obsta- 
cles, Utility is gratuitous only on condition of Efforts ex- 
changed, which, when compared with each other, give rise 
to Value. The more these obstacles give way before the 
liberality of nature and the progress of science, the more 
does utility approximate to the state of being absolutely 
common and gratuitous, for the onerous condition, and, 
consequently, the value diminish as the obstacles 
diminish. 1 7 

In respect of scarcity, the point on which, 
according to Cairnes, he lays himself open to 
criticism, is treated by Bastiat as follows : 

According to Senior, of all the circumstances which 
determine value, rarity is the most decisive. I have no 
objection to make to that remark, if it is not that the 
form in which it is made presupposes that value is inherent 
in things themselves — a hypothesis the very appearance 
of which I shall always combat. At bottom, the word 
rarity, as applied to the subject we are now discussing, 
expresses in a concise manner this idea, that, caeteris 
paribus, a service has more value in proportion as we 
have more difficulty in rendering it to ourselves; and that, 
consequently, a larger equivalent is exacted from us when 
we demand it from another. Rarity is one of these 
difficulties. It is one obstacle more to be surmounted. 
The greater it is, the greater remuneration do we award 
to those who surmount it for us. Rarity gives rise fre- 
quently to large remunerations, and this is my reason 
for refusing to admit with the English Economists that 

«" Ibid., p. 139. 



i 4 TRUE NATURE OF VALUE 



Value is proportional to Labour. We must take into 
account the parsimony with which nature treats us in 
certain respects. The word service embraces all these 
ideas and shades of ideas. 18 
18 Sterling, op. cit., p. 141- 



DEFINITIONS 



CHAPTER II 
DEFINITIONS 

§ i. Wealth is the unconsumed results of the 
productive efforts of the past still available for 
consumption or employment as a means of 
adding to the subsequent well-being of man. 
Under wealth must also be included lands of 
superior productivity whose advantages accrue 
to an individual as a result of a recognition of 
his property right therein — that is, lands rela- 
tively superior to no-rent lands. Since property 
rights in land, and the advantages which desir- 
able opportunities in production confer upon its 
possessor, are legally transferable, land enters 
the economic sphere as having exchange value 
proportionate to the advantages accruing as a 
result of such possession and control. Moreover, 
there should be included under wealth property 
rights in, and consequent control of, devices for 
adding to the effectiveness of labor in produc- 
tion ; an illustration of which would be a device 
protected by a patent right. 

Exchange value is the ratio of exchange be- 
tween two or more articles. It should be 
equitable to both parties to the exchange. In 
no case is it conceivable that value inheres in a 

17 



18 TRUE NATURE OF VALUE 

thing. What value is, is one thing; what causes 
a commodity to have exchange value, is another 
thing. The latter is the main object of the pres- 
ent investigation. 

§2. Utility is the relation existing between 
the inherent qualities of a thing and a human 
need to which it can minister. It is especially 
to be emphasized that utilities should not be 
confounded with the qualities of concrete objects, 
or with the objects themselves. In their rela- 
tions to the external world, human beings have 
needs or desires, and there arises from unsatisfied 
desires what may be defined as discomfort, or 
disutility. 

Utility is the relation of a means to an end. 
It is not inherent in a thing. It is not constant, 
but fleeting and transitory; on the other hand, 
the constituent properties of a thing are not only 
inherent but constant. The utility or usefulness 
of a thing as a means of ministering to the well- 
being of man as an end is neither inherent nor 
constant. On the contrary, it is wholly con- 
tingent and accidental; contingent, not upon 
man alone, but upon the accident of a subjective 
condition or need, susceptible of change for the 
better, to which it can minister. In its last 
analysis, utility is contingent upon a relation of 



DEFINITIONS 19 



usefulness between an objective thing, on the 
one hand — as, for example, a glass of drinking- 
water — and, on the other hand, a subjective 
condition of man, as, for example, thirst. All 
else being equal, the utility of a product increases 
or diminishes with the greater or less gravity of 
the need to which it ministers. Since utility is 
distinct from the inherent properties of a product, 
it is incorrect to assert that utility inheres in that 
product. Although utility as has been said, is 
related to the inherent properties of a product, it 
is no less related to a man's subjective condition 
susceptible of change for the better — that is, to 
a need, to which the qualities of the product can 
minister. Hereafter, there can be no further 
need of insisting that utility cannot inhere in the 
product. The capacity for usefulness of a 
bucket of water, it is true, is contingent upon its 
properties and qualities being what they are. 
But capacity for usefulness is not usefulness, any 
more than capacity to run is running; in brief, 
it is clear that but for man there could be no 
utility. Utility can result only from the use of a 
product of which utility is predicated as a means 
of ministering to a specific human need. 

Utility is the relation of a means to an end. 
That is, it is the relation which the means em- 
ployed bear to the end sought. Regardless of 



20 TRUE NATURE OF VALUE 

the objective means employed, the sole purpose 
sought for is augmented well-being. To con- 
sider this well-being as greater or less is to 
consider it quantitatively. As is the quantita- 
tive augmentation of well-being secured through 
the employment, or use, of a thing, such is the 
quantitative utility of that thing. There is no 
other measure than augmented well-being of the 
quantitative utility of a thing. There need be no 
other measure to render intelligible to us con- 
cepts of quantitative usefulness or utility. 

§ 3. In viewing man's relation to the objective 
world outside of him, one is chiefly impressed by 
the fact that his ever-recurring needs can be 
ministered to ordinarily only by overcoming the 
obstacles, or hindrances, interposed by the 
existing conditions of his environment. This 
process can be accomplished with gain only on 
condition that his capacity is such as to enable 
him to overcome these obstacles and thus to 
obtain the concrete articles which serve his needs. 
In the main, satisfactions are obtained only by 
the process of overcoming the resistances of 
nature. Viewed from the position of the one 
wishing to improve his well-being, hindrance is 
objective. Articles, or satisfactions, freely ob- 
tainable without objective hindrance have no 



DEFINITIONS 21 



exchange value, and do not enter into the eco- 
nomic sphere. 

Effort is the correlative of objective hindrance. 
Cost is the subjective impairment of well-being 
that results from that personal effort, which is 
required in overcoming the objective hindrances 
of nature. While hindrance is objective, cost is 
subjective. Cost is measured by the discomfort 
arising from the effort involved in overcoming 
the necessary hindrance. 

§ 4. Production involves such artificial 
changes in objective conditions as results in 
supplying a means of promoting the well-being 
of man. In brief, to produce is to render hin- 
drance-bearing products available for use; that 
is, for consumption, or exchange. 

The four generally recognized factors in 
production are as follows: 

1. Land, or the gifts of nature, which, through 
the rights of control granted by society, confer 
upon the possessor opportunities in production. 

2. Labor, or physical energy, applied to the 
task of surmounting the objective hindrances 
attendant upon the acquisition of a commodity. 

3. Capital, or instrumentalities, whose em- 
ployment so adds to the effectiveness of labor in 
production as to reduce cost-impairment. 



22 TRUE NATURE OF VALUE 

4. Directive intelligence, devoted to finding 
the most favorable opportunities for production, 
to devising the most effective instruments for 
use as aids to labor, and to directing effectively 
the joint operations of labor and capital. 

§ 5. Gain is the excess of well-being obtained 
by the use or consumption of a product over 
and above the cost-impairment attendant upon 
producing it. All economic activity has for its 
object this gain. Loss is the converse of 
gain; that is, when the happiness sacrificed 
in personal cost exceeds that obtained through 
the acquisition and consumption of the article, 
then loss is felt. Loss and gain arise di- 
rectly from a situation in which men are 
occupied in producing articles which satisfy 
their own wants. 

When men are engaged in exchanging articles 
with each other, Gain takes a slightly different 
form, which may be designated as Profit. In 
its last analysis, Profit arises from the fact that 
the thing parted with as compensation has been 
produced, or otherwise acquired, at less cost than 
would have attended the production of the thing 
secured through the exchange of services. 
This disposes of the antiquated fallacy which 
assumes that the gain of one party to an exchange 
is obtained only by a loss to the other. 



PRODUCTION 



CHAPTER III 
PRODUCTION 

§ i. Production, as previously expressed, i§ 
the result obtained by an application of subjec- 
tive energy adequate to the task of surmounting 
the obstacles that hinder artificial changes 
which add to well-being. In the processes of 
production we must necessarily make changes 
in objective conditions; for instance, we must 
do what is necessary to take ore out of the ground 
and fashion it into a hammer. Such operations 
as these result in effective production. It is to 
be noted, however, that we set out to overcome 
objective conditions in order to produce a 
subjective effect upon ourselves. This sub- 
jective effect measures the utility of the given 
articles. 

On the other hand, it must be kept in mind 
that production does not of necessity result 
from every application of subjective energy 
designed to secure that end. In the case of 
effective production, as just described, from the 
gross augmentation of well-being which we 
obtain from the consumption of a product there 
must be subtracted the cost, or impairment of 
well-being, arising from the application of 

25 



26 TRUE NATURE OF VALUE 

subjective energy, or labor, necessary to sur- 
mount the objective hindrances. Production, 
however, would be futile, even if subjective 
energy were exerted, in case the impairment of 
well-being, or cost, in the productive process is 
equal to or greater than the increase of well- 
being arising from the consumption of the 
product. That is, in this investigation, it is to 
be understood that production carries with it 
some net augmentation of well-being as its 
result. 

§ 2. In order to begin with elementary con- 
ditions from which our reasoning will start, 
it seems best to present an illustration. In 
the first instance, we will suppose that, 
living in complete isolation from my fel- 
lows, I am wholly dependent upon my own 
individual efforts to secure the necessaries of 
life. Thus, in order to secure the bucket of 
water, whose utility is such that its consumption 
will avert an anticipated discomfort of thirst 
during the next twenty-four hours, it is assumed 
that the water can be obtained from a spring 
lying one mile distant. The only means by 
which I can secure the water is by an application 
of subjective energy adequate to the task of sur- 
mounting the objective hindrances that stand 



PRODUCTION 



in the way of its acquisition. In short, I must 
produce it from the spring. Two estimates 
will be set by me, one against the other. On the 
one hand, the penalty of fatigue or cost in walk- 
ing one mile to the spring and carrying back 
the water will be compared, on the other hand, 
with the thirst discomfort arising from depriva- 
tion of water during the given time. That is, I am 
brought face to face with alternative discomforts, 
one of which is inevitable. As an intel- 
ligent being free to choose between these alterna- 
tives, it is assumed that I will balance them as 
accurately as possible, the one against the other, 
to the end that by choosing the one which involves 
the least degree of discomfort the sum of my well- 
being, considered as a whole, may be augmented. 
We will suppose that the discomforts of thirst 
due to deprivation of the water for the next 
twenty-four hours, as compared with the cost 
of obtaining the water from the spring, is as 
ioo to 10. In brief, the units of cost-discom- 
fort attendant upon producing the water from 
the spring one mile distant are represented by 10. 
Thus by balancing the discomfort of thirst 
attendant upon deprivation of the water, which 
in my judgment is ioo, against the discomforts of 
fatigue attendant upon producing it from the 
spring one mile distant, which I have decided is 



28 TRUE NATURE OF VALUE 

but 10, it is evident that the anticipated gain or 
incentive to production will equal 90. 

If, now, we assume such changes in environ- 
ment as will result in placing a greater and greater 
distance between me and the spring, which is 
my most available source of supply, we shall 
find that, as the distance, which is here the chief 
element in the hindrance encountered, increases, 
cost-impairment will increase proportionately, 
until, at last, gain will vanish, and with it the 
sole incentive to rational activity, or productive 
effort. Thus, for example, with a spring one 
mile distant, if the gain would be 90; at two miles, 
80; at five miles, 50; at nine miles, 10 — we will 
be justified in concluding it would vanish com- 
pletely with the spring at ten miles away. 

§ 3. So far, in this illustration, we have been 
concerned with the conditions of a man in an 
isolated situation. Now, we will change to the 
case of a man working as a member of society 
in which he is no longer compelled to rely solely 
upon his own unaided efforts as a means of 
acquiring products that can be obtained only 
by surmounting the hindrances imposed by 
nature. Here we are met at once with the fact 
that there are marked variations in the relative 
capacities of men in surmounting the obstacles 



PRODUCTION 29 



of production. If I avail myself of the services 
of another I am at once met by the fact that he 
may have a relatively superior capacity to pro- 
duce the thing desired by me than he has to 
produce certain other things needful to him. 
Therefore, the other might find it to his advan- 
tage to produce and supply me with the water 
upon condition that I will produce and supply 
him with some article, like a hat, the use of 
which will add to his well-being. As in our 
direct dealings with nature there must be a 
measurable gain as an incentive to productive 
effort, so in our dealings with our fellow-men 
there must be an incentive to an exchange of 
services. It will be assumed that I can provide 
A with a hat at a cost to myself as compared 
with a bucket of water of 9 for the hat as against 
10 for the water. By so doing I shall gain one 
unit, which marks the degree in which my 
capacity to produce the hat exceeds my capacity 
to produce the water. On the other hand, 
looking at the matter from the point of A, whose 
capacities are relatively different from mine 
for the same purposes, we will suppose that A 
can produce the water at the cost of 8, while 
his relatively inferior capacity in producing 
the hat would make it cost him 12 to overcome 
the hindrances attendant upon its acquisition. 



30 TRUE NATURE OF VALUE 

Although the hat is as essential to my well-being 
as it is to A, since one hat will meet my needs, it is 
evident that additional hats will have no utility 
to me except as a means of making compensation 
for the service of others in my behalf, as, for 
example, compensating A for his work in 
supplying the water. On the other hand, the 
utility of the hat to A is supposed to have the 
outside limit of 16, while the outside limit of 
the utility of the water to me is ioo. This 
illustration is based upon the assumption that 
the objective obstacles that constitute the 
hindrance of both the water and the hat that 
exchanges for it are identical for both A and 
me, and that the variations in the costs are 
wholly due to variations in our respective capa- 
cities for the work in hand. 

§ 4. Reduced to its simplest terms, the pro- 
duction of a hindrance-bearing product needful 
to a man is to render it available to him for its 
use or consumption. This being true, every 
effort that results in rendering needful products 
more readily available for use or consumption, 
is effective productive effort, even though it falls 
short of rendering its product directly and im- 
mediately available. 

Thus to produce a bucket of water from a 



PRODUCTION 31 



spring one mile distant is to render it available 
as a means of quenching thirst, at a point in 
space one mile distant from its source of supply. 
Since no change whatever has been effected in 
the properties or qualities of the water, it is 
evident that the whole process of production 
has consisted in producing a utility of place. 
So, also, to produce a hat is to render it avail- 
able for employment as a covering for the head. 
The production of a hat, involves processes 
other than those attendant upon transporting it. 
Thus, the loose straws must first be gathered — 
perhaps grown — after which they must be prop- 
erly assorted, and plaited into such form as will 
adapt them for employment as a means of 
adding to the sum of human well-being. If, 
through error in judgment, it is either too large 
or too small to be available for the purposes for 
which it was designed, the effort to produce 
has been abortive. A condition precedent to 
producing is the rendering of a product, needful 
to man, available, or at least more readily 
available than before, for his particular use or 
consumption, as a means of promoting his well- 
being. Though productive processes are widely 
different in their character, the final test of 
production is found in the fact that, through 
effort, needful products have been rendered 



32 TRUE NATURE OF VALUE 

available, or more readily available than form- 
erly, for employment as a means of adding to 
the well-being of man. 

Now, upon what basis will the hat and the 
water be exchanged in the open market ? Will 
it be upon the basis of assumed equivalence in 
the anticipated utilities of these two products 
in actual use; or will it be upon the basis of 
assumed equivalence in the gravities of the 
objective hindrances surmounted in rendering 
them available ? In other words, will it be upon 
the basis of equivalence in the utilities of the 
products; or upon the basis of the utilities of 
the services, which, by supplying these products, 
render them available for use or consumption ? 
The question affords its own answer. ' To assert 
that the value of product X equals the value of 
product Y, is but a convenient way of declaring 
that the utility of the service, that renders one 
of them available for use or exchange, is the 
exact equivalent of the service that renders the 
other article available for like purposes. It is, 
furthermore, the most convenient way of de- 
claring equivalence in the gravities of the objec- 
tive hindrances that must be surmounted in 
order to render these two products available. 



UTILITY OF THE SERVICE DISTIN- 
GUISHED FROM THE UTILITY 
OF THE PRODUCT 



CHAPTER IV 

UTILITY OF THE SERVICE DISTINGUISHED 
FROM THE UTILITY OF THE PRODUCT 

§ i. In the illustration previously given, and 
in all practical cases of exchange, it is clear that 
there is no direct relation between the utilities 
of the products exchanged and their exchange 
value. That is, the relative utilities of the two 
products do not give us the necessary data for 
an intelligent determination of the equitable ratio 
of exchange between them. In this connection 
it may be well to direct attention to the fact that 
concepts of utility and of disutility — of aug- 
mented and of impaired well-being — are but 
positive and negative terms relative to the same 
phenomenon, namely, human well-being. Thus 
a unit of measure, based upon a clearly conceived 
and specific degree of augmented well-being, 
will be well adapted for use as a means of giving 
intelligible expression to concepts of impaired 
well-being. Referring to our illustration, it is 
evident that, in regard to my need for water and 
the means of ministering to it, I find my most 
specific, clearly defined, and consequently avail- 
able measure of the water's utility, not in a 
consideration of the increased well-being that 

35 



36 TRUE NATURE OF VALUE 

would result from its use — that is, not from the 
utility of the commodity — but in consideration 
of the specific impairment o] well-being that 
deprivation of it will inflict. Obviously, the 
utility of a product is more vague, and less 
clearly denned, than the impairment of well- 
being that would result from a deprivation of 
this product. That is, having estimated the 
greater or less utility of the water by estimating 
the specific thirst-discomfort, which deprivation 
of it will inflict, as ioo, the ruling consideration 
is to be found in a greater or less impairment of 
well-being that would result from my surmount- 
ing the objective-hindrances attendant upon 
producing it from the spring. 

In turning to the case where I am not living 
in isolation, but in social relations with others* 
so that exchange of services is possible, the 
same principles will be found true. We will 
refer to the illustration in which the water is 
supplied to me by A. It is evident that he will 
not supply me with this bucket of water as a 
free gift. On the contrary, his service as a 
means of averting the cost-discomfort attendant 
upon its production by me, will be available only 
in consideration of the fact that I am prepared 
to render him an acceptable compensatory 
service. It is evident that A's service as^such 



UTILITY OF SERVICE AND PRODUCT 37 

will have a utility for me based solely upon what 
A is to do for me, separate and apart from the 
utility which water — the product of his doing — 
is to me. 

Now, upon what basis can I, as an intelligent 
being, consent to make compensation for this 
bucket of water secured through the instrumen- 
tality of A's service? Can I base it upon the 
efficacy of the water as a means of averting the 
specific discomfort of thirst, which has been 
estimated at 100 ? Or shall I insist upon basing 
it solely upon the efficacy of A's service in supply- 
ing it, which under the conditions assumed can- 
not exceed 10 ? The answer to this inquiry is 
too obvious to admit of discussion, and further- 
more it clearly discloses the absolute necessity 
of sharply differentiating between the utility 
of a service that supplies a product and the 
utility of the product which such service supplies. 
Moreover, in the conduct of the practical affairs 
of every-day life only the most obtuse fail to act 
upon this distinction. 

§ 2. The necessity of the distinction between 
the utility of the service and the utility of the 
product which such service supplies will appear 
more clearly when we study the conditions of 
the exchange of the hat for the water between 



38 TRUE NATURE OF VALUE 

A and me. Recognizing A's right to demand a 
proper compensation for his service in my 
behalf, it is understood that he will demand of 
me a return service that involves my producing 
and supplying him with the hat. Now, under 
what conditions can I with advantage to myself 
make the compensation demanded ? That is, 
wherein lies my incentive to this exchange ? 
To determine this, must I first ascertain the 
degree of the utility of the hat to me, to the end 
that such utility may be balanced against the 
utility of the water? And does it follow as a 
matter of course, that, if I find that the quanti- 
tative utility of the water is materially in excess 
of that of the hat, I shall, regardless of the cost- 
impairment attendant upon producing the latter, 
certainly gain by exchanging it for the water? 
That is, would I gain by the exchange, if it cost 
me more to produce the hat than it would cost 
me to produce the water ? Evidently not. On 
the contrary, as a basis for intelligent choice 
between the alternative courses open to me, I 
must now determine, not the utility of the hat, 
but the cost-impairment attendant upon its 
production, to the end that this impairment of 
well-being may be balanced against the cost- 
impairment which A's service in supplying me 
with the water averts. What is more, unless I 



UTILITY OF SERVICE AND PRODUCT 39 

find the cost-impairment attendant upon my 
production of the water measurably exceeds that 
attendant upon my production of the hat, there 
can be no rational incentive to the exchange. 
Indeed, if I find that the production of the hat 
demanded by A as compensation for his service 
in supplying the water, costs me more than the 
10 units attendant upon my production of the 
water, it is evident that loss, and not gain, must 
result from the exchange. Not only will there 
be no incentive to make the exchange, but, 
because of the loss that would follow, there 
would be an incentive to refrain from mak- 
ing it. 

§ 3. A moment's reflection renders it apparent 
that under normal conditions I can know little 
or nothing of the intensity of the specific need 
upon which in its last analysis the greater or less 
utility of the hat for A depends; while he, in 
turn, will be equally uninformed as to the inten- 
sity of the specific need that limits and deter- 
mines the greater or less utility of the water as a 
means of ministering to my thirst. Not only 
is this true, but each will instinctively resent as 
unfair, and wholly without warrant in equity, 
every attempt on the part of the other to base 
his demand for compensation for his service, 



40 TRUE NATURE OF VALUE 

in supplying a thing, upon the gravity of the 
other's need for that thing. 

To make the matter properly clear, it may be 
necessary to analyze more minutely the elements 
of this transaction. In the illustration, the 
outside limit of the water's utility to me was ioo; 
while the disutility or cost-impairment in bring- 
ing it from the spring one mile distant is 10. 
Also it should be borne in mind that I have a 
need for only one hat. On the side of A, the 
situation is quite different. We will suppose 
that the objective-hindrances in obtaining either 
the water or the hat are to all intents and pur- 
poses identical for him and for me; but his 
capacity to surmount the difficulties of obtaining 
the water is, relatively speaking, so superior to 
his capacity to produce the hat as to enable him 
to produce the water at 8; while it costs him 12 
to produce the hat. On the other hand, my 
capacity to produce the hat is relatively so much 
superior to my capacity to produce the water 
that it costs me only 9 to produce the hat, while 
it costs me 10 to produce the water. We also find 
here a complete reversal of the relative utilities 
of the products to A and to me. While my 
subjective conditions are such as to fix the out- 
side limit of the utility of one bucket of water at 
100, its greatest anticipated utility for A is found 



UTILITY OF SERVICE AND PRODUCT 41 

in its acceptance by me as compensation for my 
service in supplying him with the hat, to produce 
which would have cost him 12. On the other 
hand, while the highest utility to him of the hat 
is 16, its highest utility to me, based upon the 
greatest recognized need for which it will now 
be necessary to provide, is found in the fact that 
my service in supplying it will be accepted by him 
as compensation for his service in supplying me 
with the bucket of water which would cost me 10. 

It may be well to emphasize again the fact 
that the distance to be traveled and the weight 
of the burden to be borne — which constitutes 
the objective hindrances of water — are identical 
for A and for me. So, too, the objective hin- 
drances arising from collecting material, weaving 
or manufacturing a hat are supposed to be 
identical for both. On this supposition, that 
the objective difficulties are the same to both 
of us, it is a self-evident proposition that varia- 
tions in the cost-impairment to A and to me of 
obtaining the water, or in the cost-impairment 
to A and to me of obtaining the hat, must be due 
to equally marked variations in our respective 
capacities for the work in hand. 

Under these circumstances, we have the con- 
ditions favorable to an economic exchange be- 
tween the producer of the water and the producer 



42 TRUE NATURE OF VALUE 

of the hat; that is, the exchange will be profitable 
to both parties to the transaction. In this 
instance, as, for that matter, in every other, profit 
arises not from the fact that the product required 
by each has a utility in excess of the utility of 
the product parted with, but simply and solely 
from the fact that each can produce and supply 
the other with the thing parted with at a cost- 
impairment less than that at which he can pro- 
duce and supply himself with the thing acquired 
through the exchange. Thus each has secured 
the product which is the immediate object of his 
desire at less of cost-impairment than would 
have attended its acquisition had he surmounted 
the hindrances incident to its production by his 
own direct efforts. Indeed, it should be self- 
evident that unless he can do this, there can be 
for him no profit; and, without the profit, there 
can be no rational incentive to exchange. In 
short, profit equals the diminution of cost- 
impairment that results from exchange of service 
for service in supplying products. In other 
words, as is the diminution of cost-impairment 
attendant upon producing the thing parted with, 
in comparison with the greater cost-impairment 
attendant upon producing the thing acquired, 
such is the profit which becomes an incentive 
to an exchange. 



UTILITY OF SERVICE AND PRODUCT 43 

It should be observed, also, that the profit 
which by right falls to the share of each party 
to an exchange is in no way affected or contingent 
upon the profit falling to the share of the other; 
that is, one party does not obtain a profit at the 
expense of the other. I secure a profit of 1, 
not at the expense of A, but simply because my 
capacity to produce the hat supplied to him is 
relatively superior to my capacity to produce 
the water. This arises from the fact that the 
hat is produced by me at a cost of 9, while the 
water is produced by me only at a cost of 10. 
On the other hand, A secures by the exchange a 
profit of 4, not at my expense, but solely because 
he can produce and supply the water at a cost 
of 8, while to produce the hat would have cost 
him 12. 

§ 4. If, as a result of the above analysis, I 
supply A with a hat in exchange for his service 
in supplying me with water, the result is popularly 
expressed by saying, "the value of the water is 
the hat;" or, conversely, "the value of the hat is 
the water." We have here a statement of 
exact equivalence in what is termed the value 
of these two products, and one which will meet 
with the instant and unqualified approval of all 
who are made familiar with the conditions 



44 TRUE NATURE OF VALUE 

and terms of the transaction. We are, there- 
fore, obliged to conclude that it is based upon 
some easily recognized and well-established 
data. 

At this point, however, warning must again 
be given that this equivalence in value is not 
based upon the equivalence of the respective 
utilities of the two articles. It is to be borne in 
mind that value, of course, is inseparably asso- 
ciated in thought with utility. 1 Since, then, 
utility is habitually associated with products, 
and since " value cannot be disassociated from 
utility," what wonder is it that some writers 
instinctively turn to the recognized utility of 
the products exchanged as the true and only 
cause of this proclaimed equivalence in their 
respective values ? 

But we do not find any agreement or 
coincidence of quantitative utility in the two 
products of our illustration — or, for that 

1 " Instead of finding that utility is something necessary indeed 
to the existence of value, but not included in its proper meaning — 
something which we must drop out of mind as we become very 
scientific — we shall find that utility and value are inseparably 
bound in thought and that the attempt to disassociate them betrays 
a failure on the part of the scientist to follow with his analysis the 
subtle mental processes that have determined the popular mode of 
expression and given the public a truer notion of value than 
science has yet attained." — J. B. Clark, Philosophy o) Wealth, 
P- 75- 



UTILITY OF SERVICE AND PRODUCT 45 

matter, any such approach thereto, as to 
warrant an assumption of equivalence in their 
values based upon an equivalence in their 
utilities. Thus while the water's utility to me, 
as a means of quenching thirst, is ioo, the utility 
of the hat for me is limited to its employment as 
a means of making compensation for a service 
that relieves me of a cost-impairment of 10. 
In the case of A, the conditions are reversed; 
while the utility of the hat to him, as an article 
of apparel, is 16 — or three-fifths greater, con- 
sidered as a factor in his well-being, than the 
need upon which its utility for me is based, 
the absence of a need for the water, other than 
as a means of compensating me for my service 
in supplying him with the hat (thereby averting 
a cost-impairment of 12), limits its utility for 
him to its compensatory power, or utility in 
exchange. 

Whatever may be the qualities of the product, 
or the capacity of the product to satisfy human 
need, utility is not manifested except by the ac- 
tual employment of these qualities to satisfysome 
want. In attempting to measure the utility of a 
product, it must be remembered that the utility 
will increase or diminish with the greater or less 
need to which it ministers. That is, the utility of 
the product increases or diminishes with the 



46 TRUE NATURE OF VALUE 

greater or less augmentation of well-being that 
results from the use of the product. There is no 
other conceivable measure than this of a prod- 
uct's utility. 



THE SUBJECTIVE AND OBJECTIVE 
ELEMENTS IN PRODUCTION 



CHAPTER V 

THE SUBJECTIVE AND OBJECTIVE ELEMENTS 
IN PRODUCTION 

§ i. Unable to find in the assumed utility 
of the products exchanged any warrant for that 
declared equivalence in their exchange value, 
which is the acknowledged basis of every equit- 
able exchange, we next turn to the consideration 
of the objective hindrances to be overcome in 
producing them; and also to a consideration of 
the cost involved in such operations. These 
objective hindrances to be overcome, and the 
personal costs necessarily involved in surmount- 
ing them, are of first importance. With regard 
to cost, the purely personal factor — which is an 
inevitable consequence attendant upon the appli- 
cation of subjective energy, or labor, designed 
to surmount the obstacles that stand in the way 
of our acquisition of useful products — it is to be 
observed that it varies no less certainly, if indeed 
less radically, because of variations in the sub- 
jective capacity of the individual, than because of 
variations in the character and gravity of the ob- 
jective hindrance that renders labor necessary. 
It will be our purpose, however, to reserve the 
discussion of variations in personal capacity to 

49 



50 TRUE NATURE OF VALUE 

the next chapter; and, for the present, we shall 
confine our attention to a consideration of objec- 
tive hindrance as a factor in exchange value. 

§ 2. It is hardly necessary to point out that 
the obstacles and hindrances encountered by 
man in his efforts to effect changes in objective 
conditions which will add to the sum of his subse- 
quent well-being are to him always objective. 
In nature, the potentialities of hindrance are 
found in the laws, forces, and tendencies that, 
working ever in a given direction, operate to 
resist artificial changes in an existing order of 
things — as distinguished from the changes which, 
without human intervention, take place in the 
natural order of things. So, likewise, in con- 
sidering the hindrances encountered in our 
efforts to minister to our economic needs through 
an exchange, we find the potentialities of eco- 
nomic hindrance in every surmountable law, 
force, tendency, established rule, or custom that, 
either in nature or in society, operates to hinder 
changes in objective conditions, or in man's 
relation to them, which, if effected, would add 
to the sum of his well-being. 

Clearly, there is but one means by which 
nature's hindrance can be surmounted, and 
that lies in an application of subjective energy 



SUBJECTIVE AND OBJECTIVE ELEMENTS 51 

adequate in quantity — intensity multiplied by 
duration — and in efficiency, that is, in intelligent 
guidance or direction in surmounting the forces 
that operate to resist the artificial changes 
involved in production. Only in this manner 
can we acquire the product — such, for example, 
as the bucket of water — which, as the immediate 
and direct result of an application of productive 
energy designed to effect changes in objective 
conditions, affords indisputable evidence of 
production: that is, production, considered 
purely as an objective phenomenon, and without 
reference to its bearing upon human well-being, 
which, as has been seen, is its final test. 

Owing to our finite limitations, every expendi- 
ture of subjective energy — mental or physical, 
it matters not — the purpose and aim of which 
is to secure artificial changes in an existing order 
of things for our subsequent well-being, carries 
with it a penalty of fatigue, exhaustion, or other 
form of cost-impairment proportionate to the 
relation that exists at the time between the 
objective hindrance to be surmounted, and our 
individual capacity to surmount it. Conse- 
quently, as a necessary attendant upon every 
successful effort to secure artificial changes in 
the conditions of our environment that will add 
to the sum of our subsequent well-being, there 



52 TRUE NATURE OF VALUE 

follows a twofold result, one positive and the 
other negative — that is, one making for, and 
the other against, augmented well-being. First, 
there will be the inevitable impairment of well- 
being that, as cost, necessarily results as a con- 
sequence of every engagement between the 
objective forces that hinder, and the subjective 
forces that surmount, them. Second, there 
should be the sought-for artificial change in 
objective conditions, or in our relations to them, 
which, in so far as they make for or contribute 
to the sum of our well-being, but no farther, 
constitute what may be termed economic prod- 
uct when considered as a gross result. 

It must be apparent that production, even as a 
gross result, does not follow as a necessary 
consequence from every application of subjective 
energy, which, being designed to surmount 
hindrance, imposes cost. Indeed, production 
of this sort is in no degree less contingent upon 
the quality — effectiveness due to intelligent 
guidance or direction — than upon the quantity 
of energy applied. Lacking in either quantity 
or quality, the effort is abortive; and we have 
only cost as the result. Inasmuch as quantity 
of energy is more easily discerned than quality 
of energy — and consequently is more easily and 
definitely measured — the former is usually re- 



SUBJECTIVE AND OBJECTIVE ELEMENTS 53 

garded as having a more direct bearing than the 
latter upon cost. As a matter of fact, the latter 
is, and has been, a factor of the greatest impor- 
tance in so adding to the effectiveness of labor 
as to reduce cost. 

Furthermore, when we come to consider 
production not as purely objective — that is, the 
mere result of artificial changes in objective 
conditions — but with reference to the subjective 
effect which these changes are designedly adapted 
to secure, it is evident that we must first deduct 
from the gross augmentation of well-being 
arising from the consumption of a product, the 
impairment of well-being which, as cost, is the 
direct result of every application of subjective 
energy or labor designed to surmount economic 
hindrance. That is, if the impairment of well- 
being, which is due to cost, equals the increase 
of well-being due to the use or consumption of 
the product, there is no production in the true 
sense of the term; because there is no net aug- 
mentation of well-being as the result of the 
operation. 

§ 3. It should be observed that, in, our main 
thesis, we are engaged in an effort to ascertain 
the true basis for the unqualified declaration of 
equivalence in the values of the two products 



54 TRUE NATURE OF VALUE 

exchanged in our previous illustration, the water 
and the hat. This equivalence in value, I have 
tried to make clear, is wholly due to equivalence 
in the utilities of the two services rendered. 
And these services have equivalent utilities only 
when, and only because, they surmount equiva- 
lent hindrances. 

When we turn to a consideration of the ob- 
stacles to the acquisition of the water and the hat, 
we are confronted by the absence of a unit or a 
standard, other than the purely accidental and 
personal relation of individual cost for measur- 
ing and comparing them. Let us suppose that 
the distance to the spring and the weight of the 
burden to be borne, which are here the prime, 
and let us assume, the sole factors in the objec- 
tive hindrances encountered in the production 
of the water, are the same for A that they are 
for me. Let us also assume that — although 
the objective obstacles encountered in obtaining 
the water are the same for both, as just said — 
notwithstanding this fact there may be marked 
variations in the individual cost to him and 
to me. Likewise, though the character of 
the hindrances to be surmounted in the produc- 
tion of the hat may not have been revealed, and 
may or may not involve distance or weight, we 
may safely suppose — since normal condition s } 



SUBJECTIVE AND OBJECTIVE ELEMENTS 55 

involving free competiton, or free access to the 
most available source of supply are assumed — 
that the hindrances encountered, considered as 
purely objective phenomena, are identical for 
both. But this being established, how, in the 
absence of a unit or standard equally applicable 
to the hindrances encountered in the production 
of the water, on the one hand, and the hin- 
drances encountered in the production of the hat, 
on the other, can we intelligently determine the 
relation between them ? 

In order to secure a satisfactory unit, it is a 
self-evident proposition that the unit or standard 
for the measurement of objective phenomena 
must have something in common with the 
phenomena measured. This, of course, is to be 
admitted. Then, also, it is apparent that the 
hindrances to acquisition of the water and the 
hat are different in kind: in the case of water 
they involve distance and the carrying of weight, 
while in the case of the hat distance or weight 
might not enter at all. There is thus absent, 
as yet, any impersonal or objective standard by 
which we may make an intelligent comparison 
between these hindrances. How, in fact, a 
practical comparison is arrived at by the use of 
money will be discussed in chapter xii. 



COST A DOUBLE VARIABLE 



CHAPTER VI 
COST A DOUBLE VARIABLE 
§ i. By service is meant the doing for another 
something that will add to his well-being. 
By cost is meant the impairment of well-being 
caused by the subjective effort incident to sur- 
mounting the hindrance. The measure of A's 
service to me is found, not at all in the cost- 
impairment to him, but in the amount of cost- 
impairment to me which he has averted by 
providing me with an article, instead of obliging 
me to produce it myself. Thus, service is a 
means of averting cost; and the utility of the 
service is measured by the amount of cost-im- 
pairment it averts. The value of the service to 
me in providing me with a bucket of water — 
that is, what I would give for the water — is 
directly affected by the cost-impairment averted 
by him who brings the water. Thus the value 
of this service will be influenced by everything 
which touches this cost-impairment to me: 
either (i) anything which would change the 
objective hindrances in obtaining water; or, 
(2) anything which would affect my personal 
capacity in overcoming the hindrances in getting 
water. 

59 



60 TRUE NATURE OF VALUE 

§ 2. The two correlative terms, hindrance 
and cost, however, may each vary, and thus 
affect the value of the service. Not only does 
cost vary directly with the gravities of the objec- 
tive hindrances encountered, but it will at one 
and the same time vary in inverse ratio with 
the productive capacities of every individual who 
surmounts them. Cost-impairment, other things 
being constant, will vary inversely with personal 
capacities in overcoming a given hindrance. 
Or, if personal capacities are supposed constant 
cost-impairment will vary directly with the 
increase or decrease in the objective hindrances. 

Supposing the personal capacity to be con- 
stant, cost will increase or decrease only with 
the gravity of the hindrance encountered and 
surmounted. On the other hand, supposing the 
hindrance to be surmounted to be constant, the 
personal cost will increase as the capacity of 
the individual who surmounts it decreases, and 
decrease as his capacity increases. That is to 
say, cost which, with a given capacity, will vary 
directly with the gravity of the resistance en- 
countered, will vary inversely with the capacity 
of the individual who by the exercise of this 
capacity surmounts it. Therefore, because cost, 
which is the subjective effect of labor, increases 
and decreases in direct ratio with the hindrances 



COST A DOUBLE VARIABLE 61 

surmounted, and in inverse ratio with the 
capacity of the individual who surmounts it, 
it follows that to each individual cost indicates 
and measures the relation which his capacity to 
surmount a given hindrance bears to the hin- 
drance surmounted. In brief, cost is no less the 
measure of the incapacity — or lack of perfect 
capacity — of the individual than of the gravity 
of an economic hindrance surmounted. 

It seems apparent, therefore, that, though 
the relation between hindrance and cost is so 
intimate that the mere mention of one suggests 
the other, they are by no means so intimately 
associated as cause and effect. While it is true 
that without hindrance there would be no cost, 
the converse of this is not true; since the mere 
fact of hindrance (that is, potential resistance) 
to be overcome in order to secure changes in 
objective conditions imposes no cost-impairment. 
Thus in the present instance, the distance to the 
spring and the weight of the bucket of water 
which it is here assumed are the sole factors of 
hindrance encountered in its production seem to 
lie in the environment and to exist, so to speak, 
in the very nature of objective conditions, or in 
my relation to them. They exist, not only sepa- 
rate and apart from my needs, separate from my 
capacity to minister to them, and, for that matter, 



62 TRUE NATURE OF VALUE 

also, separate, from any inclination or incentive 
on my part to employ my capacity to produce it. 

The impairment of well-being that constitutes 
cost, however, does not appear — indeed, cannot 
appear — until by an application of subjective 
energy (of effort or labor) I engage in the task of 
surmounting the obstacles that constitute eco- 
nomic hindrances. Thus cost is the immediate 
and direct result, not of the objective forces 
that may operate to hinder changes in an existing 
order of things — though without such hindrance 
there could be no cost — but of an actual expendi- 
ture of subjective energy in the task of surmount- 
ing such hindrances; that is, it is the direct 
effect, not of the difficulty arising from the 
hindrances, but of effort. The hindrance rend- 
ers labor necessary; it is labor that imposes 
cost. 

Under the supposition that personal capacities 
are constant, then cost-impairment to any pro* 
ducer would be directly proportional to the 
objective hindrance to be overcome. On this 
assumption, the theory of value would be very 
simple and brief, to wit : an increase or decrease 
of objective hindrance would increase or de- 
crease the cost-impairment I would have to 
undergo if I myself had to produce the article; 
according to the changes in hindrance, A, who 



COST A DOUBLE VARIABLE 63 

supplies me with the article, does me a propor- 
tionally greater or less service; the value of the 
service is greater or less according to the cost- 
impairment averted; hence, the exchange value 
of the article to me is greater or less, compared 
with other things whose objective hindrance has 
remained unchanged. 

As a matter of fact, however, the case is not 
so simple, solely because personal capacities are 
not constant. Not only are there differences in 
individuals in this respect, but there are differ- 
ences for the same individual at different times. 
That is, hindrances being constant, the cost 
must vary with the individual capacity in pro- 
duction. Thus, we are led to the conclusion 
that there is no necessary quantitative relation 
between the hindrances surmounted and the 
cost. For instance, if the hat and the water 
exchange freely one for the other on a basis of 
equivalence, this equivalence could not have 
been based on the equivalence of cost, since in 
our illustration the hindrance remaining constant 
to both A and me, the cost of the hat and water 
varies. In the supposition it will be remembered 
that the hindrance to be surmounted in getting 
the water was the same for both of us, and like- 
wise the hindrance attendant upon weaving 
straw into a hat was the same for both of us; 



64 TRUE NATURE OF VALUE 

but it was assumed that the capacity of A to 
produce the water varied from his capacity to 
produce the hat. 

The utility of A's service in supplying me with 
the water is directly contingent upon the cost- 
impairment which his service in supplying the 
water has rendered it unnecessary for me to 
undergo. As it would have cost me 10 to pro- 
duce it, and A's service relieves me of the neces- 
sity of so doing, it must follow that his service in 
supplying the water will have a utility to me of 
10. As a means, however, of averting thirst, 
the water has a utility to me of ioo. Thus, A's 
service in supplying me with the water has a 
utility of 10, considered as a means of averting 
the cost-impairment its production by me 
would certainly have inflicted. 

§ 3. Cost, as we have shown, is intimately 
related to personal capacity. Cost results 
from, and is no less the direct effect of, finite 
limitations in the application of subjective energy 
to the task of surmounting a hindrance, than 
from the gravity of the objective hindrance that 
renders this application of energy necessary. 
Hence it would seem no less illogical to treat 
cost as the immediate and direct effect of these 
limitations in our capacity than to treat it 



COST A DOUBLE VARIABLE 65 

solely as the effect of the hindrances that rendei 
it necessary. 

§ 4. We have thus far assumed, and very 
properly, that the incentive to the exchange of 
the water and the hat between A and me had 
been found in the net augmentation of well- 
being, which, as profit, has fallen to the share of 
each as an immediate and direct result of this 
exchange of a service that supplies one of these 
products for a service that supplies the other. 
Recurring to our illustration, although A's 
profit is fourfold greater than mine and seem- 
ingly a factor of the first importance in fixing 
the terms of an exchange that shall be equitable 
and just to both parties, it has not been, and, 
it will be seen, cannot by right be, taken into 
consideration. 

This is due to the fact that profit — which, as 
has been shown, has its origin and limitation in 
variations in cost, due to variations in individual 
capacity to surmount the hindrances of the two 
products exchanged — is no less an evidence of 
relatively inferior capacity in the production of 
the thing acquired, than of relatively superior 
capacity in the production of the thing parted 
with. Thus, in our illustration, we find that A's 
profit of 4 arises from the fact that, while his 



66 TRUE NATURE OF VALUE 

capacity to obtain the water enables him to do 
so at a cost of but 8, his capacity to produce 
the hat is relatively so much lower that it cost 
him one-half more, or 12, to produce it. This 
profit, it should be observed, would be the same 
had we assumed that while it cost A 16 to pro- 
duce the water it would have cost him 20 to 
produce the hat. The figures employed are not 
important ; what is important is that there should 
be differences in the comparative capacity to 
produce the two articles. If, in the last supposi- 
tion, it cost him 4 more to produce the hat than 
it did the water his profit would necessarily be 4. 
Whether the apparently excessive profit falling 
to the share of A arises from a relatively high 
capacity in the production of the water, or from 
a comparatively low capacity in the production 
of the hat, is a matter that does not concern me. 
Indeed, as has been seen, his profit is in no way 
contingent upon the relation which his capacity 
bears to mine ; but solely upon the relation which 
his capacity to surmount the hindrance of the 
thing parted with bears to his capacity to sur- 
mount the hindrance of the thing acquired 
through the exchange; and as this variation in 
his capacity is great his profit is great, without 
in the slightest degree affecting my own interests. 
Since profit represents only the difference in 



COST A DOUBLE VARIABLE 67 

individual cost attendant upon surmounting 
these two hindrances, it is evident that relatively 
inferior capacity in the production of the thing 
acquired is a no less fruitful source of profit 
than relatively superior capacity in the pro- 
duction of the thing parted with. 



VALUE OF SERVICE DIRECTLY AF- 
FECTED BY VARIATIONS 
IN HINDRANCE 



CHAPTER VII 

VALUE OF SERVICE DIRECTLY AFFECTED 
BY VARIATIONS IN HINDRANCE 

§ i. We have seen that cost-impairment is a 
function of two variables: (i) the variations in 
personal capacity; and, (2) the variations in 
objective hindrance; also that cost-impairment 
averted is a direct measure of the value of a 
service. Now, however, in investigating the 
effect of (1), or variations in personal capacity, 
upon the value of a service, we must in our minds 
separate cost from variations in cost. As an 
influence on exchange value cost, of course, 
remains; but variations of cost, as will be shown, 
are practically excluded. Variations in cost 
due to variations in individual capacity, as 
distinguished from variations in cost due to 
differences in the gravity of the hindrances en- 
countered, can no more be taken into account 
as a factor in fixing the terms of an equitable and 
just exchange, than can the equally personal 
and no less variable subjective needs that serve 
as a basis for determining the greater or less 
utility of the products exchanged. 

Consequently we are brought to see that the 
individual cost that measures and determines 

71 



72 TRUE NATURE OF VALUE 

the utility of a service that averts it, no less than 
the individual need upon which rests the utility 
of the product supplied, are for obvious reasons 
unrevealed by either party to the other, when 
fixing the terms of contemplated exchange that 
shall be fair and just to both. But even though 
individual cost should be revealed, as has been 
assumed in the exchange between A and me 
of the water for the hat, the fact that the cost 
varies with personal capacity must lead to its 
elimination by common consent; since the 
relation which A's capacity bears to mine, or 
mine to his, or the capacities of either of us to 
the capacities of our fellows, affords no reliable 
data for making a true comparison between the 
utility of these two services based upon the 
hindrances they surmount. 

Thus we are brought to see that, in negotia- 
tions preliminary to an economic exchange- 
(i) the personal equation traceable to the varia- 
tions in the capacity of the individual, no less 
than (2) the variations in the utility of products 
due to variations in individual needs for them, 
are instinctively neutralized or otherwise elim- 
inated from consideration, because they afford 
no common data for fixing the terms of an ex- 
change which shall be fair and just to both 
parties. In other words, only such data are 



VALUE OF SERVICE DIRECTLY AFFECTED 73 

considered which, being impersonal and having a 
direct bearing upon the services under consider- 
ation, are mutually acceptable and necessary in 
determining a quantitative relation between 
them, considered solely as a means of overcoming 
the obstacles that constitute economic hindrance- 
In short, we are brought to the conclusion that 
in exchange value personal cost and personal 
utility are negligible; and only those elements 
are taken into account which are based upon 
impersonal and objective data. 

§ 2. It seems a self-evident proposition that 
it would be as inequitable for either party to an 
exchange of services to prey upon the infirmities 
of the other, as would be the case were one to 
demand and secure a share in the profit, how- 
ever great, that equitably falls to the other as a 
consequence of his relatively inferior capacity in 
the production of a thing acquired through 
exchange. And since superior capacity in the 
production of one of these products, or inferior 
capacity in the production of the other, is but a 
way of expressing his relative capacity for both, 
we have no right to demand a share in the profit 
accruing to him, as a result of a relatively supe- 
rior capacity in the production of the thing he 
parts with. That is, variations in cost arising 



74 TRUE NATURE OF VALUE 

from varying capacities, as opposed to variations 
in cost arising from variations in objective hin- 
drance, can have no effect on exchange value. 

In order to point out clearly the manner in 
which subjective costs are eliminated, we may 
resort to an enlargement of our previous illustra- 
tion. We may suppose that A and I are placed 
on a wide prairie where water is to be found one 
mile to the east and food one mile to the west. 
Each goes in the opposite direction ; I go for the 
water and A goes for the food, thus rendering 
equal services to each other, since the hindrances 
incurred by each are the same. The services 
rendered are equal; the cost would make no 
difference in the exchange if A were lame, and 
if thereby the personal cost to him were much 
greater than to me. Clearly, if A were alone, he 
would himself have to go for the water, no matter 
what his personal cost-impairment was, and 
likewise he would himself have to go for the food. 
My being there with a capacity different from A's 
in overcoming the same physical obstacles in 
each case does not in any way change the value 
of the service rendered by A to me. Moreover, 
if I refuse to get the water, he could himself 
obtain it only at a cost proportionate to his own 
personal sacrifice ; and no matter what my capa- 
city is, when I get the water it exchanges for the 



VALUE OF SERVICE DIRECTLY AFFECTED 75 

food; because if he himself had gone for the 
water it would have represented the same cost- 
impairment to him as the getting of the food. 

§ 3. In thus weighing and balancing service 
against service we are enabled to conclude that 
the hindrances encountered and surmounted 
in consummating this exchange are quantitative 
equivalents, judged, not by a consideration of 
individual cost incurred or averted — which, 
varying in inverse ratio with the respective 
capacities of the parties to the exchange, affords 
no trustworthy ground for intelligent comparison 
— but by consideration of data from which the 
personal equation has been eliminated. There- 
fore we must conclude that the service rendered 
by each is the equal of that rendered by the other. 

Strictly speaking, the only thing we can do 
for another, the only way in which, by the rendi- 
tion of a service, we can add to the sum of his 
well-being, is to supply him with a hindrance- 
bearing product needful to him. By so doing 
we relieve him from the cost-impairment that, 
but for our service, must have attended its acqui- 
sition by him. As is the importance of the 
service which we do for him measured by the 
hindrance surmounted for him, such is the 
importance of that which by right we may 



76 TRUE NATURE OF VALUE 

demand that he do for us. For example, in 
supplying me with a bucket of water, A renders 
me a service. The mere rendition of this service, 
however, quenches no thirst. If the service did 
quench the thirst, it is apparent that the water 
itself might be dispensed with altogether, which 
is absurd. All that A does for me, all that he 
can do for me, consequently all that he is entitled 
to compensation or credit for doing, is measured 
by the cost-impairment his service in supplying 
the water has averted. Obviously, equity demands 
that in every exchange of product for product the 
service that supplies one of these products must be 
the exact equivalent of the service that supplies the 
other, to the end that each party to the trans- 
action may do for the other as much as the other 
does for him. And this can be accomplished only 
by each surmounting a hindrance that is the exact 
equivalent of the hindrance surmounted by the 
other. Thus the water and the hat exchange 
for each other, not because the utility of the 
products themselves is equal, but because 
the utility of the services that supply them is 
equal; the utility of the services in this case, 
as in every equitable exchange, is measured 
directly by the objective hindrances to be over- 
come by each party to the transaction in supply- 
ing the products. Moreover, it should be ob- 



VALUE OF SERVICE DIRECTLY AFFECTED 77 

served that the outside limit to the utility of the 
service is of course the utility of the product. 
Thus we are brought to the important conclusion 
that the only measure of the utility o) a service 
is to be found in the greater or less hindrance to 
be overcome. Therefore, to render just compen- 
sation for a service that surmounts a given hin- 
drance, a compensatory service that surmounts, 
an equivalent, but different, hindrance must be 
rendered. And it might be added that, even if 
they surmount the same hindrance at different 
times, there would likewise follow a true and 
equitable compensation. 

§ 4. Thus we reach the conclusion that the 
exchange in question is based upon that golden 
rule of equity and justice between man and man 
upon which, in its last analysis, all rational or 
economic activity rests, namely: "Do for 

OTHERS AS THEY DO FOR YOU." We shall find 

that this rule, deduced from a study of equitable 
exchange, has a wide and general application. If 
not since the world began, at least since right 
has succeeded might as a rule of social conduct, 
it has had instinctive recognition as the dominant 
factor in fixing the terms of every equitable 
exchange. Even children at their play instinc- 
tively insist upon "turn about" in the perform- 



78 TRUE NATURE OF VALUE 

ance of its onerous features. Only those who 
take their turn in drawing back the empty sled 
may justly claim a share in the coasting. This 
basing equality of exchange value on the 
equality of the services rendered is self-evident, 
and is so axiomatic as to defy proof; that 
is, the services are equal where the hindrances 
necessary to be surmounted are of equivalent 
gravity. 

An altruistic modification of the social law is 
found in the Golden Rule of the Master: "Do 
for others as ye would that they do for you." 
This rule, since it seems to suggest a principle 
of social conduct that is higher and better than, 
or at least an improvement upon that based upon 
equal and exact justice for all, is theoretically 
beautiful; but it is upon careful consideration 
found to be too vague and indefinite-for general 
use, and if left to the interpretation of those who 
attach greater importance to individual than to 
social or racial well-being, would lead to confu- 
sion, if not to anarchy. Although in accordance 
with that conception of human destiny that re- 
gards the well-being of the race as superior to 
individual well-being, it seems to be in direct con- 
flict with the law of the survival of the fittest. If 
this rule is intended to suggest anything more 
than "justice tempered with mercy," or charity 



VALUE OF SERVICE DIRECTLY AFFECTED 79 

— that is, if it is intended as a rule that demands 
a temporary sacrifice of individual well-being 
for the benefit of all, to the end that the final 
result will benefit the individual more than the 
present sacrifice has inconvenienced him — it is 
too ethereal and too spiritual for the compre- 
hension of finite and selfish minds. It lacks 
the definiteness, the exactness, of a formula 
applicable to the affairs of e very-day life. 



FREE COMPETITION AND PERSONAL 
COST 



CHAPTER VIII 
FREE COMPETITION AND PERSONAL COST 
§ i. As has been said, but for the fact of 
marked variations in the capacities of the indi- 
vidual, cost will vary in direct ratio to the 
hindrances to be overcome; that is, it will 
increase or decrease only as the objective hin- 
drances increase and decrease. Consequently, if 
variation in capacity could be eliminated from 
consideration, it is evident that the normal 
relation between the cost inflicted upon the 
individual in the production of two products 
whose hindrances are equivalents would also be 
that of equivalents. In society as it now exists 
the actual elimination of variableness of individ- 
ual capacity, is, as has been said, not only quite 
out of the question, but, on the whole, apparently 
undesirable. Hence, we shall find that by in- 
suring to each member of society such perfect 
freedom of choice as enables him to engage in 
the production of the products in which his 
capacity is relatively speaking high, to be ex- 
changed for products in the production of which 
his capacity is relatively low, the disturbing effect 
of these variations is so far neutralized as to 
secure the free exchange of product for product 

83 



84 TRUE NATURE OF VALUE 

upon the equitable basis of equivalence in 
objective hindrances surmounted by each. 

Having for his aim the greatest possible well- 
being for his efforts, an individual could not, 
under free competition, increase his well-being 
by producing the other articles already provided 
him by others. The personal cost-impairment 
averted is under free competiton the greatest 
possible. This being so, the only other way in 
which his cost-impairment can be affected is by 
changes affecting objective hindrances. Thus 
variations in personal costs may under free 
competition be practically neglected. 

§ 2. Under normal conditions of free compe- 
tition — that is, in the absence of that most fruit- 
ful, if not the only source of all economic inequity 
between man and man, the monopolistic condi- 
tions — the individual would be at liberty to 
engage in the production of those products for 
which in his opinion his capacity, when compared 
with his capacity to produce other needful prod- 
ucts, is highest. By exchanging at the estab- 
lished competitive or market ratio — that is, 
upon the equitable basis of equivalence in hin- 
drances surmounted — those products for which 
his capacity is relatively high for those for which 
his capacity is relatively low, he promotes his 



FREE COMPETITION AND PERSONAL COST 85 

well-being in the highest degree by securing the 
greatest returns for his efforts, that is, by secur- 
ing the greatest returns for the cost-impairment 
endured. And it should be noted that superior 
capacity may be the result of natural, or per- 
sonal, or artificial superiority. 

That is, under free competition the measure 
of the utility of the service is to be found 
in the gravity of the hindrances necessarily 
surmounted. In short, an equivalence of 
hindrances surmounted is the only basis of 
equity in exchange value. To free competition 
between all who care to engage in the pro- 
duction of any products by surmounting their 
hindrances — whether these products are for use, 
or to be exchanged for other products having 
hindrances — must we look for the establishment 
and maintenance of an equitable ratio of ex- 
change of service for service in the open market 
upon a basis of equivalence in the hindrances to 
be surmounted in supplying the products of 
exchange. That is, a ratio of exchange which 
is based upon the fundamental idea of each doing 
for the other as much — no more, no less — as the 
other does for him. 

Under the supposition of free competition 
it can be seen more exactly what specifically con- 
stitutes profit. Profit is the gain, the advantage, 



86 TRUE NATURE OF VALUE 

the augmentation of well-being that accrues to 
an individual from the exchange of products in 
the production of which his capacity is relatively 
high for other products for which his capacity 
is relatively low, on a basis of equivalence of 
hindrances established by free competition in 
the open market. In other words, it is less 
cost — due to relatively higher capacities — atten- 
dant upon producing and supplying the thing 
parted with than would have attended the pro- 
duction of the thing acquired. 

§ 3. We are now in a position to state what 
should be the conditions of exchange value under 
the normal conditions of free competition. As is 
understood, we are in search of a basis of equit- 
able exchange value as between the persons 
concerned in the exchange. It has already been 
pointed out that variations in personal cost due 
to variations in individual capacity should be 
disregarded in fixing the conditions that con- 
stitute an equitable exchange. Inasmuch as 
variations in individual capacity are facts of 
society which must be admitted, we shall find 
that, by insuring to each member of society that 
perfect freedom of choice that enables him to 
engage in the production of that for which his 
capacity is, relatively speaking, high, to be ex- 



FREE COMPETITION AND PERSONAL COST 87 

changed for other products in the production of 
which his capacity is relatively low, the disturb- 
ing effect of these variations in personal capacity 
is so far neutralized as to secure the free exchange 
of product for product in the open market upon 
the equitable basis of an equivalence in the 
hindrances to be surmounted in producing them. 
But for the fact of marked variations in the 
capacities of individuals, cost, as we have seen, 
would vary in direct ratio with hindrances; 
that is, it would increase and decrease directly 
as the obstacles to be overcome increase and 
decrease. On the other hand, since variations 
in capacity are to be eliminated from considera- 
tion under normal conditions of free competition, 
it is evident that the normal relation between 
the hindrances overcome by the individuals in 
the production of two products would be that 
of equivalence in gravity. In the normal con- 
ditions of free competition in the open market 
we obtain an equivalence between various 
elements in our problem. If marked variations 
in cost due to equally marked variations in the 
capacities of individuals are eliminated, then 
the normal relation of competitive cost to com- 
petitive cost must be that of equivalence. 
Obviously, we have then arrived at the conclu- 
sion that under normal conditions of free com- 



TRUE NATURE OF VALUE 



petition equivalence in the hindrances of the 
products exchanged is absolutely essential to 
equity. Moreover, this relation of equivalence 
in value, based upon equivalence in the hin- 
drances surmounted, must be the normal relation 
between all goods in every exchange of product 
for product in the open market. 

Furthermore, the relation of equivalence in 
the market prices of the products exchanged 
is based upon equivalence in the objective 
hindrances necessary to be surmounted in order 
to produce them. The competitive price of a 
product in the open market is contingent upon 
the gravity of the maximum hindrance which 
it will be necessary to surmount, in order to 
meet the demand of the market at any given 
rate. If the demand is such as to necessitate 
surmounting a greater hindrance in order to 
meet it, the market price will increase pro- 
portionately. 

§ 4. After the study of normal or competitive 
conditions of exchange — conditions from which 
variations in individual capacity have been 
eliminated — we may now proceed to discuss 
further the position of groups of persons who 
may be regarded as competitive groups. By 
way of illustration, let us assume that, in a 



FREE COMPETITION AND PERSONAL COST 89 

community where certain products, Y and Z, 
can be obtained only by surmounting some 
hindrance, they are articles of daily use or con- 
sumption, and that they are freely exchangeable 
one for the other in the open market, on the 
basis of equivalence in the hindrances to be 
surmounted in their production. That is to 
say, anyone who cares to do so may, by the 
rendition of a service that supplies another with 
one of these products, secure a return or com- 
pensatory service that supplies him with the 
other. First, to insure the continuance of this 
condition it will be necessary to assume that 
there is, on the one hand, a sufficiently numer- 
ous group, the capacity of whose members in 
surmounting the hindrance attendant upon the 
production of Y is relatively so much superior 
to their capacity to surmount the hindrance 
attendant upon the production of Z that the 
cost-impairment attendant thereon is enough 
less to afford a sufficient incentive for profit to 
induce the exchange of a service that supplies 
the former in consideration of a return service 
that supplies the latter. Second, we must, on 
the other hand, assume the existence of a 
sufficiently numerous group, the capacities of 
whose members are at such variance with the 
capacities of the preceding group, that they can 



90 TRUE NATURE OF VALUE 

surmount the difficulty of attainment of Z at so 
much less of cost-impairment than they can 
surmount the difficulties of attainment of Y, 
that they profit by every exchange of service 
that supplies the former, in consideration of a 
compensatory service that supplies them with 
the latter. In addition, it is probable that there 
will be another group in existence the capacity 
of whose members is such that they can sur- 
mount the hindrances of one of these products 
at the same cost-impairment as that attendant 
upon surmounting the hindrances of the other. 
The fact of equivalence in the relative capaci- 
ties of each member of this third group to over- 
come these two different, but competitively 
equivalent, hindrances at the same or equivalent 
costs, renders it a matter of indifference to them 
which one they surmount. Thus it operates to 
prevent their joining either of the two competi- 
tive groups. This fact of equivalence, however, 
will not operate to prevent their producing 
either or both of these products for their own 
use or consumption. Likewise, it will not 
operate to prevent this third group from pro- 
ducing one or both of these products, indiffer- 
ently, to be given in exchange for other needful 
products; provided, of course, that their capa- 
city to overcome the hindrances in producing 



FREE COMPETITION AND PERSONAL COST 91 

these two products is, relatively speaking, so 
much higher than their capacity to produce 
other products they may wish to acquire, that 
the profit will be sufficient to induce production 
and exchange. 

Though the absence of profit incentive will 
deter the members of this third group from 
engaging in the production of the products, 
Y or Z, to be exchanged for the other, it is ap- 
parent that the existence of the third group will 
be a factor of importance, proportionate to its 
numerical strength, in the maintenance of the 
prevailing relation of equivalence in the market 
prices of these two products ; since any material 
change in the ratio of exchange between these 
products not warranted by changes in the 
objective conditions that affect their hindrances, 
must, by affording them a profit, operate to 
transfer them from the non-competitive to the 
competitive group. 

§ 5. In passing, it may be well to direct at- 
tention to the fact that it would be erroneous 
to assume that, because the capacities of any 
given member of this normal group are such 
that the cost attendant upon surmounting one 
of these hindrances, is the same as that attendant 
upon surmounting the other, that there will be 



92 TRUE NATURE OF VALUE 

any such approach to parity between his capa- 
cities and the capacities of other members of 
the same group that the cost-impairment will 
be the same for him that it is to them. Indeed, 
it might well happen that there would be such 
radical divergences in the respective capacities 
of the indivdiual members of this normal 
group that the cost-impairment inflicted upon 
one of them in surmounting either and conse- 
quently both of these hindrances would be two-, 
five-, and even tenfold greater than that in- 
flicted upon some other member of this same 
group in surmounting the same hindrance or 
hindrances. The only point to be kept in mind 
is that — no matter if one member is tenfold as 
competent as another member of this third 
group — this one member's capacity is equally 
effective merely as regards the production of 
Y and Z. 

That there would be equally marked differ- 
ences in the capacities — and consequent costs — 
for the members of the group who find profit 
in the production of Y to be exchanged for Z 
and in the capacities of the members of the 
group profiting by Z to be exchanged for Y, is 
also apparent. As a consequence of this marked 
variation in the capacity of one member of a 
given group, when compared with the capacity 



FREE COMPETITION AND PERSONAL COST 93 

of some other member of the same group, it is 
evident that there can be no approach to uni- 
formity in the profit accruing to one member 
when compared to that accruing to another, in 
effecting like exchanges. 

This being true, it is evident that, paradoxical 
as it may seem, the profit accruing to him whose 
capacity to produce the thing parted with is 
lower than that of any other member of the 
group, may, owing to his relatively greater 
incapacity to produce the thing acquired through 
exchange, reap a much greater profit from the 
exchange than other members of the group. 
Thus it is a matter of little consequence how 
widely the capacity of a given member of a 
competitive group may differ from what may 
be termed the general or average capacity of 
the group; since his profit is wholly contingent 
upon the degree in which his capacity to produce 
the thing parted with exceeds his capacity to 
produce the thing acquired, through the ex- 
change of service for service. So long as his 
capacity to produce the former greatly exceeds 
his capacity to produce the latter, he will con- 
tinue to profit greatly by every exchange, even 
though his capacity to produce the product for 
which his capacity is greatest is greatly below 
the average. 



94 TRUE NATURE OF VALUE 

Hence, it appears that, through free and open 
competition between those who for the profit 
that by right accrues to them as a result of their 
ability to exchange a product, in the production 
of which their capacity is relatively high, for 
one in the production of which their capacity 
is relatively low, the ratio of exchange between 
the products involved in the transaction is 
established and maintained upon the only 
equitable basis — that of competitive equivalence 
in the hindrances to be surmounted in their 
production. In brief, we are led to the con- 
clusion that it is through free competition alone 
that the market ratio of exchange between two 
given products is maintained upon the equitable 
basis of each party to the transaction doing 
for the other as much as the other does for him. 



LAW OF EXCHANGE VALUE 



CHAPTER IX 
LAW OF EXCHANGE VALUE 

§ i . In the exchange of the water for the hat 
we found an exact equivalence in what is termed 
"the value" of these two products — meaning 
thereby equivalence in the hindrance each 
service surmounts in order to supply them. 
Moreover, this declaration of equivalence is 
such that it meets the instant and unqualified 
assent of all who are familiar with the terms 
of the transaction; and it seems to imply a 
more perfect comprehension of the subtleties of 
value than "science has yet attained." 1 

A undertakes to render me a service involving 
the surmounting of a specific hindrance in con- 
sideration of my rendering him a compensatory 
service, involving the surmounting of a different, 
but no less specific, hindrance of like gravity. 
The fact that there is emphatic declaration of 
equivalence between the values of the two prod- 
ucts, and the fact that there is a common recog- 
nition of this equality by all, is conclusive evi- 
dence that this parity of value is not traceable 
to the properties, qualities, or attributes inherent 
in, and, therefore, common to, both. Least of 

* J. B. Clark, Philosophy of Wealth, p. 75. 
97 



98 TRUE NATURE OF VALUE 

all does it suggest any necessary approach to 
equivalence in the greater or less utilities of 
these two products, when employed as a means 
of promoting the well-being of the parties to the 
transaction through use or consumption. 

In our former illustration, it was supposed 
that the spring from which the water must be 
taken was one mile distant. We will now assume 
that this spring is no longer available, and that, 
as a consequence, the water must now be pro- 
cured from a spring two miles distant. The 
moment this fact is established A will withdraw 
his offer at the former quotation, and instead of 
agreeing to supply me with a bucket of water 
for one hat, he will now demand two hats as a 
compensation for his service in supplying it. 

It seems to be a self-evident proposition that 
the changes in the conditions of the environment, 
which have resulted in doubling the hindrances 
necessary to be surmounted in producing and 
supplying the bucket of water, have in no degree 
affected the gravity of the need upon which a 
greater or less utility of the water rests. No 
more does it add to, or detract from, the efficacy 
of the water when employed as a means of 
ministering to thirst. Indeed, regardless of 
changes in the gravity of hindrances to be sur- 
mounted, the impairment of well-being that 



LAW OF EXCHANGE VALUE 99 

would result from deprivation of water for a 
period of twenty-four hours would still be 100. 

§ 2. Though there has been no change either 
in the inherent qualities of the water or in the 
gravity of the need it ministers to, and conse- 
quently in its utility, it would be absurd were I 
to insist that there had been no increase in the 
utility or value of the service that supplies it, and, 
consequently, that the demand for increased 
compensation therefor would be equitable. On 
the contrary, no sooner am I convinced that the 
gravity of the hindrance which A must surmount 
in order to supply me with the water has been 
doubled, than I am compelled to admit that he 
is justly entitled to double the compensation 
for his service in surmounting this hindrance. 
Hence, if we assume that the hindrance encoun- 
tered in obtaining a hat remains constant, I am 
irresistibly compelled to admit that, if one hat 
was an equitable compensation for A's service 
in supplying me with one bucket of water when 
the hindrance was represented by a spring one 
mile distant, two hats would be required to make 
equitable compensation for a service that supplies 
me with one bucket of water from a spring two 
miles distant. This outcome would be equit- 
able, not because of any increase in the utility 



ioo TRUE NATURE OF VALUE 

of the product, but simply and solely because 
the hindrance which he must now surmount 
being doubled, the utility of his service in sup- 
plying the water has doubled. No sooner have 
we agreed to an exchange of product for product 
on this basis, or, to be more accurate, of a service 
that supplies two hats as compensation for a 
service that supplies one bucket of water when 
the hindrance has been doubled, than we shall 
say: "The value of the water is not one, but 
two hats;" or conversely. And again in this 
case the declaration of equivalence would meet 
the approval of everyone of sound mind who is 
made familiar with existing conditions affecting 
the hindrances to be surmounted in supplying 
the two products exchanged. 

Likewise, if, owing to further changes in con- 
ditions of environment, the most available 
spring from which to secure my bucket of water 
is found to lie at a distance of five or ten miles, 
it is evident that, all else being equal, the hin- 
drance to be surmounted in order to produce and 
supply a bucket of water, would be five- or ten- 
fold greater, as the case may be, than that 
attendant upon supplying it from the spring 
but one-fifth or one-tenth of these distances. 
This being true, it is evident that A would be 
justified in demanding five hats or ten hats, as 



LAW OF EXCHANGE VALUE 101 

the case may be, for his service in surmounting 
one or the other of these hindrances and for 
supplying me with the desired bucket of water. 
He would be justified in his demands, because 
under normal conditions that which he now does 
for me — regardless of his individual capacity, 
which I cannot consider — imposes a five- or ten- 
fold greater cost-impairment. He would be 
justified, because by the rendering of his service 
he would relieve me of a cost-impairment five- 
or tenfold greater than would be the case were 
the spring one instead of five or ten miles distant. 
He would be justified, because the hindrance he 
surmounts for me is the equivalent of the hin- 
drance which he demands that I surmount for 
him in making compensation for his service. 
Finally, he is justified, because in demanding 
five hats or ten hats he is demanding no more 
0} me, than he is doing for me. 

§ 3. Thus far in our illustration changes in 
the gravity of the hindrance surmounted, and 
changes in exchange value of the product, have 
kept even pace each with the other. That is to 
say, exactly as the obstacle, or hindrance sur- 
mounted, has increased or decreased in gravity, 
so has the utility of the service that surmounts 
these obstacles for us increased or decreased. 



102 TRUE NATURE OF VALUE 

It should be noted here, however, that we must 
be careful to avoid confusion of terms. Simply 
because these two things are related to each 
other we are not warranted in employing them as 
synonyms. Indeed, as has been seen, these 
terms suggest not concurring, but antithetical, 
concepts relating to the same phenomena: the 
one implies increased well-being, the other 
implies an impairment of well-being. In other 
words, while there is suggested by hindrance an 
obstacle to well-being, there is suggested by the 
service an augmentation of well-being that 
re ults as a consequence of the removal of th's 
bstacle through the instrumentality of the 
servi e n one's behalf. In the proportion that 
the gravity oj the effort or labor necessary to sur- 
mount the obstacle is greater or less, in the same 
proportion is the utility oj the service {which, 
by removing the obstacle, renders such labor by 
us unnecessary) greater or less. 

The utility of the product supplied, it should 
be repeated, is not a factor in determining the 
greater or less utility of a service that overcomes 
the hindrances Incident to its production, except 
in so far as it may limit the maximum utility of 
such a service. That is, regardless of a greater 
or less gravity of the obstacles to te surmounted 
in supplying the product, the utility of the serv- 



LAW OF EXCHANGE VALUE 103 

ice that supplies it can never exceed the utility 
of the product supplied. Although the utility 
of a product may limit what is termed for con- 
venience "the value of a product," the so-called 
value of a product has no bearing whatever upon 
the utility of that product. As is the utility 0} 
a service that supplies a produc', such s the so- 
called value of that product. 



THE INFLUENCE OF CAPITAL 



CHAPTER X 
THE INFLUENCE OF CAPITAL 

§ i. Let us again return to the consideration 
of a community whose members are compelled 
to rely for their daily supply of drinking-water 
upon springs located at varying dist nces. It 
must be assumed that the members of this com- 
munity are not lacking in intelligence enough 
to determine upon the desirability of their loca- 
tion according to various considerations affecting 
their needs for other things than water. More- 
over, it is inconceivable to suppose that at any 
time in the past the members of this community 
were so lacking in intelligence as to be unable 
to determine from which spring their needs 
could be supplied at least cost. 

We will first assume that the flow of water 
from a spring one mile distant is adequate for 
the needs of all. Such a situation will inevitably 
lead to the creation of some primary forms of 
capital which will reduce the difficulty of ob- 
taining the water. For example, to avoid the 
necessity of a pilgrimage to the spring each time 
a member of the community feels the pangs of 
thirst, the intelligence of its members would be 
taxed to devise a convenient vessel for trans- 

107 



108 TRUE NATURE OF VALUE 

porting the water in comparatively large quanti- 
ties. To meet this need the bucket, as one of 
the earliest forms of capital — anything that aids 
labor in production being capital — has been 
provided as the most available and convenient 
instrumentality for transporting the water in 
quantities. As the waters of this spring, and 
the vessels, or buckets, for transporting it, are 
at this period freely available to all — there 
being no monopoly in their use — each will be 
free to employ them in supplying his daily needs. 
Though the hindrance to be surmounted is the 
same for all, it is evident that, since the task 
incident to producing a bucket of water demands 
physical strength and endurance, the physically 
strong will experience less cost-impairment than 
the weak. As a consequence the weak will 
devote their energies to the production of articles 
wherein physical strength is a less important 
factor — that is, to the production of things in 
which their capacity is relatively high. 

Under ordinary conditions some will be found 
who are so poorly endowed in physical strength 
required to surmount the difficulty of obtaining 
water that the cost to them would be relatively 
much higher than to others. This fact in itself 
is not sufficient to insure an exchange of services, 
since it may well happen that relatively low 



INFLUENCE OF CAPITAL 109 

capacity in the production of the water, as shown 
by high cost, would be attended by equally low 
capacity in the production of all other needful 
products; or, conversely, relatively high capa- 
city to produce water might be attended by 
relatively high capacity in other directions. It 
is only as the capacity of the individual to sur- 
mount other but equivalent hindrances is 
relatively superior to his capacity to surmount 
the hindrance in obtaining the water, that a 
person can profit by exchanging the products 
of his superior capacity in return for water on a 
basis of equality in hindrances, as established 
by free competition. That is, differences in 
capacity such as differences in strength would 
not be taken into account in establishing an 
equality of services. In short, the cause of the 
existence of an exchange of goods in domestic, 
as well as in international trade, is to be found 
in the comparative difficulties of attainment, or 
hindrances. 

§ 2. We may now pass from the case of a 
primitive form of capital, like the bucket, to 
improved forms of capital. If, by an exer- 
cise of superior productive intelligence, 
some member of the community succeeds in 
devising and constructing a more effective in- 



no TRUE NATURE OF VALUE 

strument, by the use of which he so adds to the 
productivity of his labor as to materially reduce 
the cost-impairment attendant upon the pro- 
duction of the water, it is evident that so long 
as he retains exclusive control of a property- 
right in this labor-saving and cost-averting tool, 
he alone can profit by the increased capacity 
its employment affords. Although the use of 
this labor-saving device might so add to his 
capacity as to render it superior to that of his 
fellows in the production of the water, the 
measure of profit accruing to him would be 
found in the degree in which his capacity to 
produce the water exceeded his capacity to 
produce, or otherwise secure, other needful 
products on a basis of equality of difficulties 
of attainment. We shall postpone for the 
present a consideration of the changes in ex- 
change values which will result when this 
improved tool comes into general use. 

We will now assume that this labor-saving 
tool takes the form of a barrow, or push-cart, 
and that its employment enables its user to 
produce two buckets of water at the same cost- 
impairment that, without its aid, would have 
attended the production of one ; and in addition 
that he would set a return which would compen- 
sate him for the labor of producing the tool and 



INFLUENCE OF CAPITAL in 

keeping it in repair. Thus it is that, by the 
employment of this vehicle as a means of adding 
to the effectiveness of his labor in transporting— 
producing — water, his power which, owing to his 
property-right in the vehicle, now passes as his 
" personal capacity" to produce it, is doubled. 
We say "that which passes as his personal 
capacity," although, as a matter of fact, it is 
"personal" only in the sense that the capital or 
tool itself is the product of his own brain and 
hand. If that be the case, equity demands 
not only a recognition of his property-right in it, 
but also of his right to the benefits which its 
employment confers on the owner and user. 

As a consequence of the increase in capacity 
arising from the employment of this newly 
devised aid to production, the owner or user 
will now be able to supply two buckets of water 
to the members of the community at a cost- 
impairment that, but for its aid, would have 
attended his supplying of only one. As a con- 
sequence, he will now gain an approximately 
double profit by supplying those whose capacity 
to produce a hat, or its equivalent, is superior 
to their unaided capacity to produce a single 
bucket of water. That is, we are assuming 
that, in this instance, the producer of the hat is 
unaided by any labor-saving device. There- 



112 TRUE NATURE OF VALUE 

fore, we are led to conclude that the advantage 
conferred by the invention and use of this new 
form of capital in obtaining water so increases 
his personal capacity that the owner is enabled, 
through exchanges based on equality of difficulty 
of attainment, to secure two hats at a cost- 
impairment heretofore attendant upon securing 
one. 

§ 3. While equity clearly demands a recogni- 
tion by society of a man's property-right in the 
labor-saving device suggested by his brain and 
fashioned by his hands, and consequently also 
in the increased product and benefits which its 
employment as an aid to labor affords, it does 
not as a rule confer upon him a property-right 
in unpatentable ideas upon which its construc- 
tion is based. As men are constituted, there 
are few who absolutely originate ; but there are 
many who can copy and apply a suggestion. 
A lower order of intelligence is required to 
copy, than to invent. Inasmuch as the general 
idea of improved transportation would not 
prevent the development of various other devices, 
it will be but a short time before many others 
are provided with similar labor-saving tools, 
which also may be called tools which diminish 
the difficulty of attainment. Since the employ- 



INFLUENCE OF CAPITAL 113 

ment of this tool doubles the effectiveness of the 
labor of all who employ it, it is evident that the 
owner thereof may demand and secure as interest 
a share in the increased product of the borrower 
or renter of the tool. 

We have seen that, so long as the owner of 
the improved instrument held a position of 
monopoly, he could, irrespective of his improved 
capacity, obtain two hats for the cost-impair- 
ment heretofore attendant upon producing one 
bucket of water. That is, not until a sufficient 
number of these instrumentalities which increase 
capacity, or reduce difficulty of attainment, are 
constructed and employed to meet the demands 
of all who must procure their water by the old 
method — or make equitable compensation for 
the service that supplies it by that method — 
will free competition for profit between the 
capitalistic producers compel a readjustment 
of the ratio of exchange on a basis of approxi- 
mate equality in the difficulties of attainment 
of the hat and the water; that is, on a basis of 
exchange of a hat, not for one but for two 
buckets of water. We say, on a basis of approx- 
imate equality in the difficulties of attainment, 
for the following reason : The marginal capital- 
istic producer, who now supplies the demand 
for two buckets of water at a cost-impairment 



114 TRUE NATURE OF VALUE 

no greater than that which, without the aid of 
his capital, would have attended the production 
of one, has, as a fact, undergone a certain cost 
in the construction of the tool; and also he has 
undergone further cost in maintaining its work- 
ing efficiency, not to mention constant deteriora- 
tion and ultimate replacement. Therefore, a 
rent, or interest-charge, is not only justified, but 
necessary to prevent loss. Moreover, if com- 
pensation can by right be demanded on the 
ground of benefit conferred by the usefulness 
of a product, a rent, or interest-charge, is like- 
wise justifiable on the ground of benefits con- 
ferred by the tool. 

§ 4. Moreover, it is patent that interest is a 
sum obtained through the increased efficiency 
of labor in connection with the improved pro- 
ductivity of an employed tool ; and that it is not 
taken at the expense of any form of labor in the 
community. In order to show that interest is 
not taken from society, but from the benefits 
which the employment of capital confers — 
that is, from that which it actually contributes 
in the way of increased product — attention may 
be called to the fact that if the capitalist is 
deprived of his tool, or forbidden to use it, the 
following evil results will ensue: 



INFLUENCE OF CAPITAL 115 

i . There will be an injustice in depriving him 
of a property-right in the product of his own 
efforts, and from the advantages attendant upon 
his doubled capacity, in the exercise of which 
no one would be wronged. 

2. The sum total of human well-being in 
society would be diminished by the amount 
which the effectiveness of his tool contributes in 
overcoming difficulty of attainment. 

In a case of the exchange of one hat for two 
buckets of water, it will be remembered that 
this result was brought about because all mem- 
bers of the community were at liberty to possess 
and employ the labor-saving tool which reduces 
by one-half the cost attendant upon obtaining 
the water. Therefore, no one would question 
the equality in difficulty of attainment between 
one hat and two buckets of water; but all must 
realize that this marked alteration in the ex- 
change value between the water and the hat is 
due, not to any reduction or change in the objec- 
tive hindrances of nature that entered into the 
difficulties of attainment of these products, but 
solely to the increase conferred by the use of 
the tool in the individual capacity of the user, 
arising from the contribution which it makes to 
the effectiveness of his labor. 

This increase in individual capacity — or re- 



n6 TRUE NATURE OF VALUE 

duction in difficulty of attainment — due to the 
employment of capital which, by doubling the 
effectiveness of labor, reduces cost, places those 
who are not provided with this instrumentality 
at such great disadvantage that they are quickly 
driven from the field where there is open com- 
petition. Since each member of the community 
has equal opportunity to create and possess the 
improved tools, the possession of capital by the 
enterprising member of society does no injustice 
to anyone else. If the possessor of capital 
drives the non-possessor of capital out of the 
field, it is due not to any impairment of the 
capacity of others, not to any infringement upon 
their rights. On the contrary, it is unmistak- 
ably clear that there has been secured a material 
advance in the well-being of society as a whole. 
Hence a compulsory return to the old method 
would indicate such a backward step as should 
incite indignant protest from every intelligent 
member of society. 

§ 5. Some further points may be added here 
in explanation of our general thesis. Although 
capital is primarily treated as an aid to labor 
in production, yet, whenever, through free com- 
petition in the open market, the full measure 
of the demand for a product is supplied by the 



INFLUENCE OF CAPITAL 117 

more effective means, the difficulty of attainment 
itself is regarded as having been reduced. This 
arises from the following analysis: Since cost- 
impairment is the final test of the difficulty 
of attainment to be surmounted; and, since 
the necessary cost has been reduced by the 
employment of capital, the highest difficulty 
of attainment necessary to be overcome in 
order to furnish the required supply is reduced 
proportionately. 

It may be, however, that those who have 
the improved instruments may not be able 
to supply the full market demand; in such a 
case, the owners of the capital occupy a position 
of monopoly. So long as the services of some 
who are unable to secure the improved tool must 
continue to produce the water by the old method, 
the old ratio of one hat for each bucket of water 
must prevail as the ratio of exchange on a basis 
of equality in difficulty of attainment. And so 
long as this prevails, those possessing and em- 
ploying the improved tool will make a double 
profit — less the expense of maintenance, or 
interest, if the tool is hired for the purpose. 
This, again, gives confirmation to the trade 
axiom, that there cannot at any given time be 
two prices in the market for any given thing; 
and that the highest competitive price will be 



u8 TRUE NATURE OF VALUE 

the prevailing price. Under such conditions 
it is evident that those who, by the employment 
of capital as an aid to labor, reduce the cost one- 
half, will obtain a double profit. They will 
obtain this profit, however, not at the expense of 
others, but simply and solely by reason of the 
double capacity conferred by an improvement in 
the methods employed by them to surmount 
the objective hindrances required in the pro- 
duction of the water. 

Thus it is that every improvement in method, 
or in effectiveness of the instrumentalities em- 
ployed — as measured by reduction in cost — will 
for a period give large profits to those employing 
them; but freedom to construct, or otherwise 
acquire the tool, or to resort to improved 
methods, will inevitably tend to a restoration of 
equality in the difficulties of attainment sur- 
mounted as a basis for exchanges in the open 
market. Improvement in method implies a net 
advance in the well-being of society. It means 
more products without increased cost, or the 
same products at less cost. Is this net result, or 
augmentation in the well-being of society, as- 
signable to a reduction in difficulty of attainment, 
or in cost? Obviously the former; because 
personal capacity in overcoming the difficulty 
of attainment has increased, and cost-impair- 



INFLUENCE OF CAPITAL 119 

ment has been lowered, due to a reduction in 
the difficulties of attainment. 

In this way, the productive capacity of the 
community is, as a whole, raised to a higher 
level. This is the outcome of the productive 
intelligence and inventive genius of man. To 
stimulate and promote this inventive genius, 
patents are in some instances granted, protect- 
ing inventors for a period of years in the exclu- 
sive right to the production or use of the im- 
provements suggested by their intelligence. As 
a consequence of this policy, every American 
from the highest to the lowest, is on the alert to 
discover some improvement in tools or methods 
which, by adding to the productivity of labor, 
would diminish the difficulty of attainment, and, 
by reducing cost-impairment, afford an in- 
creased profit. 

Moreover, to continue our illustration, it is 
more than probable that the constant activity 
of the human mind will lead some one to im- 
prove upon the push-cart which represented 
the past level of productive capital. This new 
improvement will further reduce the hindrances 
to be overcome, and consequently the market 
ratio of the water ; or, what amounts to the same 
thing, will so increase the productive capacity 
of those employing the latest improvement, as to 



120 TRUE NATURE OF VALUE 

reduce the cost-impairment in obtaining the 
bucket of water. As a consequence, there will 
be a further readjustment in the market in order 
to secure an equitable ratio of exchange cor- 
responding to the changes in the difficulty of 
obtaining the water, or in the improved methods 
of surmounting this difficulty, and the difficulty 
of obtaining the hat, or its equivalent. Thus, 
for example, the push-cart may be superseded 
by a vehicle of greater capacity, and the ox or 
horse may take the place of the man as motive 
power. As a consequence, not two, but 5 or 10 
or 20 buckets of water may now be produced 
and supplied at a cost-impairment to the pro- 
ducer even less than that originally attendant 
upon the production of one. The cost-impair- 
ment attendant upon providing this instrumen- 
tality is measured by the cost of producing and 
maintaining it in a state of maximum efficiency. 
That is to say, it is measured by the cost of 
building the cart, and of securing, training, and 
keeping the ox in good condition, with ultimate 
replacement taken for granted. 

That the profit accruing to the user would, 
for the time in which he enjoyed a monopolistic 
position, be increased in proportion as the capa- 
city of the producer is increased, is apparent. 
That his profit would in no degree impair the 



INFLUENCE OF CAPITAL 121 

well-being of others is equally apparent. The 
old ratio of exchange would prevail until those 
in possession of the latest method were able to 
more than supply the demand at the old ratio 
of two buckets of water for one hat ; when this 
point is reached, the exchange ratio between the 
water and the hat would conform to this reduced 
difficulty of attainment, as measured by the 
reduced cost. That this latest and best form 
of capital would enable its possessors to drive 
producers by the older methods out of the field 
is clear. Although those driven out must regard 
it as a hardship, society as a whole is a gainer, 
and to the extent of the net product of the labor 
of those displaced. 



RENT 



CHAPTER XI 
RENT 

§ i. Hitherto we have assumed that the mem- 
bers of the community have been able to obtain 
their whole supply of drinking-water from one 
source situated one mile distant; that is, all the 
supply has been brought from the nearest and 
most available spring. We will now assume 
that, owing to an increase of population, the 
demand for drinking-water has outrun the 
supply that can be secured from the spring one 
mile distant. As a consequence, it now becomes 
necessary to draw some portion of the supply 
from the next most available spring, which is 
two miles distant. Under such conditions we 
shall have an actual doubling of the hindrance 
to be surmounted in supplying certain members 
of this community with their daily supply of 
drinking-water. That is to say, from this time 
on some will be compelled to go, not one, but 
two, miles for their water supply; or, what 
amounts to substantially the same thing, make 
double compensation for the service that sup- 
plies it. 

It is true that the difficulty of attainment to 
those who are still able to secure their supply 

125 



126 TRUE NATURE OF VALUE 

from the spring one mile distant would be 
unchanged. For those only who are compelled 
to provide themselves with water from the 
spring two miles distant would the hindrance 
be doubled. As a consequence, all would seek 
to supply their needs from the least distant 
spring. This being impossible, under the sup- 
position, it is evident that, in the absence of any 
recognized rule of guidance, the "strong arm" 
and "big stick" would be laws unto themselves. 
The weak would be crowded out, the strong 
would impose upon them even harsher condi- 
tions than they themselves had to contend with . 

§ 2. Since this resort to force must of necessity 
lead to that endless strife and bloodshed which 
we recognize as anarchy, society is compelled to 
formulate rules and regulations for the protec- 
tion, not of the strong, who can protect them- 
selves, but of the weak. One very simple rule for 
governing the conduct of the members of this 
primitive community, under the conditions 
assumed, would be that of priority, or "first 
come, first served." This rule, by the way, is 
frequently resorted to in an emergency of this 
sort, even to the present day. Its chief recom- 
mendation lies in the fact that it seems to be as 
fair for one as for another. Under this method, 



RENT 127 



each member of a group desiring to secure a 
bucket of water from the nearest spring, will, 
upon arrival, take his proper place at the end 
of the waiting-line of would-be producers. It 
goes without saying that in a comparatively 
short time the line would be so extended that the 
last producers would be compelled to wait so 
long for their proper turn, that it would be a 
saving of time for them to continue their journey 
to the spring one mile farther on, where without 
delay they might secure the desired bucket of 
water. We are thus brought to see that the 
element of time forms an important factor in 
cost-impairment. 

While, as a rule, time is a seemingly less impor- 
tant factor than labor, in the productive capacity 
of the individual, the fact that it is no less arbi- 
trarily and irrevocably limited than intelligence, 
physical strength, or opportunity itself, renders 
it apparent that under by no means unusual 
conditions it is a factor of vital importance in 
the cost attendant upon production. Attention 
is called to the fact, that, considered as an indirect 
result, time is a no less important factor in cost- 
impairment than fatigue. Even when no physi- 
cal exertion is involved, the irksomeness of 
waiting not infrequently occasions cost-impair- 
ment. Indirect cost results from inability to 



128 TRUE NATURE OF VALUE 

promote well-being through lack of time for 
surmounting hindrances, or lack of time to 
recuperate strength. As a consequence, it will 
inevitably result sooner or later that the cost- 
impairment attendant upon "waiting," con- 
sidered as an indirect, no less than as a direct, 
outcome, will exceed that imposed by sur- 
mounting a difficulty of attainment which is 
twofold greater. 

When this point is reached, the difficulty of 
attainment of the hat remaining constant, the 
equitable compensation for a service that sup- 
plies a bucket of water, regardless of the spring 
from which it is procured, or " produced," 
would be, not one, but two hats. This is but 
one of the many confirmations of the established 
rule that there cannot at one and the same time 
be two prices in the same market for the same 
thing. Moreover, in this connection the im- 
portant fact to be kept in mind is that the in- 
evitable result of the adoption of this primitive, 
but measurably equitable, rule of " first come, 
first served," would in time be to establish sub- 
stantial equivalence in the hindrances to be 
surmounted, regardless of the two sources of 
supply. 

§ 3. In the absence of an equitable rule for 



RENT 129 



the government of economic activity, still 
another means of establishing justice and of 
avoiding anarchy might be found in a regulation 
that provided for a payment into the public 
treasury, for the benefit of society as a whole, 
of one hat or its equivalent for the privilege of 
procuring water from the spring one mile distant, 
while leavnig the opportunity afforded by the 
second most available spring untaxed, or free 
to all. The result would be such an equalizing 
of conditions that no one would have an advant- 
age over the other in the gravity of the hin- 
drances they must surmount in order to produce 
a bucket of water. Of course, while those who 
now produce from the near-by spring would have 
a difficulty of attainment to surmount only one- 
half as great as those who produce from a 
spring twice the distance, the fact that they 
would be compelled to submit to a tax of one 
hat for the privilege would exactly offset the 
advantage gained. 

Since this tax of one hat laid upon all who 
procure a bucket of water from the spring where 
the difficulty of attainment is lowest would go 
to swell the public revenue, which would be 
expended only for the well-being of all, it is 
evident that the payment for the advantages of 
opportunity, which is usually designated "rent," 



130 TRUE NATURE OF VALUE 

should be properly diffused for the well-being of 
all. This method of taxation, of course, assumes 
as a condition, the public ownership of such 
landed opportunities as the spring. 

We are thus brought to see the peg upon which 
Henry George hung his theory of taxation. To 
obviate or nullify the apparent injustice to 
society arising from a recognition of a private 
property-right to the land and its products, 
Henry George would impose upon the owner a 
tax — to be disbursed for the benefit of all — 
equal to the superior advantages which this 
right affords, when compared with the advan- 
tages possessed by, or available to, those whose 
opportunity to produce is least. Though the 
difficulties attendant upon pursuing the plan 
which he has recommended would be great, 
this fact has no bearing upon the justice or in- 
justice of the proposed solution. While his 
suggestion, however, seems far from inequitable, 
it does not seem to have commended itself to the 
judgment of conservative economic students of 
the present day. There is a question, however, 
— which may be interjected here — whether it is 
just to allow a railway corporation absolute con- 
trol over anthracite coal deposits. 

§ 4. Still another method might be resorted 



RENT 131 



to in order to avoid the anarchy that, in the 
absence of a rule designed to harmonize con- 
flicting interests, must otherwise prevail. The 
establishment of order might be secured by 
granting to some great warrior, statesman, or 
ruler, as a reward for his exceeding valor, or 
wisdom, which had saved the community from 
overwhelming disaster, the exclusive right of 
control over the waters of the nearest spring. 
That is to say, a property-right in the spring, 
or its waters, might be granted him. This 
property-right in a superior opportunity, would, 
from this time on, be accounted a factor in his 
personal capacity, to be employed as a source 
of equitable profit, should he choose so to make 
use of it. 

Since but a small portion of the water from 
this spring would be required to minister to his 
personal needs, it is evident that he would seek 
to dispose of the surplus to the best advantage. 
Quick to recognize the fact that the obstacles 
to be surmounted in producing the water from 
the nearest and most available spring would be 
doubled, he would not be slow to increase his 
profit by adding one hat to the charge which all 
must pay who secure their supply from this 
source. In other words, his property-right in 
superior opportunities, or advantages, would 



132 TRUE NATURE OF VALUE 

enable him to collect a royalty, or "rental," 
of approximately one hat from all who now make 
use of it. 

Granting the basis of his right to possession, 
he would apparently have no difficulty in justi- 
fying his course, by the argument that, under 
the admittedly equitable rule of "first come, first 
served," the market equivalent of one bucket 
of water would, through free competition in the 
open market, have been established as that of 
two hats. And he might claim that, notwith- 
standing the rental collected by him, the same 
ratio still prevailed. Hence he could urge that 
rent was not a sum drawn from labor or from 
the wages of labor, or, for that matter, from 
society. 

§ 5. Another method of preventing anarchy 
might be followed by establishing a rule, or 
custom, under which each member of society 
could on proper application secure an allotment 
of land, under the principle of "first come, first 
served," in the products from which allotment 
he should have a property-right. Under such a 
system we may assume that C, being the first 
to apply, would be granted a property-right in 
that particular piece or parcel of land upon 
which the most available spring is situated. 



RENT 133 



Having a property-right in the land, he would 
also have a property-right in each bucket of 
water secured from his spring. Consequently 
C would be in a position to exact a tribute or 
rental of, say, one hat for each bucket of water 
secured by others from his spring. 

Without stopping to discuss the advantages 
or disadvantages to society attendant upon the 
recognition of a property-right in land, I wish to 
call especial attention to the fact that, as soon 
as any material portion of the water actually 
needed by society must be secured from a source 
where the difficulty of obtainment is greater than 
before, a change in the market ratio between 
water and other products must inevitably result. 
Under these conditions the ratio will be changed 
to correspond with the highest difficulty of attain- 
ment that must be surmounted in order to supply 
the whole demand. The difficulty of attainment 
which is dominant in regulating exchange value 
in the market is the highest difficulty of attain- 
ment which it is necessary to surmount in 
order to minister to the existing demand; that 
is, the demand of those who can pay the price 
with profit. 

We may now go one step farther in our illus- 
tration and assume that the individual, or group 
of individuals, has secured a property right in 



134 ■ TRUE NATURE OF VALUE 

all the sources of supply of drinking-water with- 
in a radius of say five miles from the settlement. 
The individual, or the group of individuals who 
have combined their interests, would have it in 
their power to demand compensation for their 
service in supplying each bucket of water, on a 
basis of the difficulty of attainment which others 
must surmount in order to produce it from the 
most available spring not yet controlled by the 
monopoly, which is over five miles distant. In 
such a case they might stipulate that the price 
demanded might be five hats for each bucket 
of water. 

In this case, of course, we have presented to 
us the operation of a monopoly. On the one 
hand, the monopolistic possessors might contend 
with perfect truth, that no one is compelled to 
pay their price, since all are at liberty to produce 
their own supply by their own efforts ; and they 
might point out that there is an abundance of 
pure water in the spring six miles distant. On 
the other hand, society would obviously rebel 
against the injustice which permits the monopo- 
lists of more advantageous sources of supply, 
under their property-right, to impose onerous con- 
ditions of exchange. They may, however, hesi- 
tate long before interfering with the sacredness of 
property-rights upon which modern society rests. 



RENT 135 



§6. The relations of rent to hindrance may 
now be more fully explained by discussing the 
way in which improvements operate. The very 
fact of the existence of the group, or individual, 
who monopolizes the supply, will set others to 
devising means of obtaining the water at less 
cost. Let us now assume that some member of 
society, more highly endowed with productive 
intelligence than his fellows, conceives the idea 
of so improving the method of transporting the 
water as to reduce the consequent cost attendant 
thereon to a minimum hitherto unknown. 

It is the purpose of the new inventor to lay, 
to the very heart of the settlement that is to be 
supplied, a pipe-line from a spring situated high 
on the hillside six miles distant, which provides 
an almost inexhaustible supply of the purest 
water. Indeed, his plan even goes so far as to 
pipe the water to every house in the community. 
We will suppose that the owner of the pipe-line 
agrees to supply the water on a basis of one hat 
for each bucket of water, in return for the 
exclusive right to supply water by this means 
for a term of years. In addition to this, it is 
assumed that he has secured the right of way 
across private property on condition that he 
make suitable compensation for any damage 
to the property that may result from the use of 



136 TRUE NATURE OF VALUE 

this right. Believing that this compensation 
for the service will be ample to him, he proceeds, 
after the agreement is made, in conjunction 
with the aid of others, to instal his plant. Since 
the source of supply occupies higher ground 
than the dwellings of the community, of course 
no artificial means of propulsion are required to 
deliver it to each dwelling. 

An arrangement of this sort would commend 
itself to the judgment of the representatives of 
this community, who have authority to pursue 
any course promising the greatest good to the 
greatest number. They would justify their 
entering into the agreement on the ground that 
by its acceptance the well-being of the commun- 
ity as a whole would be greatly improved. 
Although the individual or group which, through 
monopoly, had heretofore been reaping an 
inequitable profit, would be injured; yet the 
well-being of the many is of more importance 
than the well-being of the few, especially if the 
few have been gaining at the expense of the 
many. Hence their justification would be 
complete. 

If the expense of installation has not exceeded 
the estimates made by the owner of the pipe- 
line, the return secured by the charge of one hat 
for each bucket of water will be ample to com- 



RENT 137 



pensate him for the use of borrowed capital — 
another form of cost — properly to maintain the 
plant's efficiency for the work it has to do; to 
meet his pay-roll for labor; and still leave him 
a good margin of profit for the service he renders. 
Indeed, he may find that his profit is excessive. 
If, however, he has an exclusive right, competi- 
tion by others who wish to share in his excessive 
profit is prevented; while if he has a right for 
only a limited number of years, he may, until 
that period expires, secure the full measure of 
profit due to his intelligence in devising a suc- 
cessful method of reducing the cost of obtaining 
water. 

On the other hand, if his right is secured to 
him only by the exclusive control over the in- 
strumentality he employs, such as a patent on 
the pipe-line, some one else may supplant him, 
if that person can devise some other instrumen- 
tality for transporting water which is cheaper. 
Or, again, if the owner of the pipe-line has no 
control for a term of years, and if he is dependent 
solely upon the property-right in his spring, 
which is his source of supply, then some one 
may supplant him at a moment's notice, provided 
that other can obtain water from other sources. 
Or, again, if a higher order of intelligence should 
point out that by means of an artesian well an 



138 TRUE NATURE OF VALUE 



abundant supply of water at high pressure can 
be provided at a less cost than that charged 
by the pipe-line, this other method of securing 
the supply may be resorted to in the competitive 
field. Or, finally, even the community as a 
whole might unite to instal a public utility, if 
the device for transporting the water were 
matter of common knowledge. In such a case, 
society itself might take this improvement in 
hand and by a general tax secure the capital 
necessary to instal the system; or, since the 
improvement would be permanent, perhaps 
long-time bonds might be issued to secure the 
capital and thus throw a portion of the expense 
justly upon future generations. 



MONEY 



CHAPTER XII 
MONEY 

§ i. It has been already fully explained that 
the gravity of the hindrance which it is neces- 
sary to surmount in obtaining an article 
determines the utility of the service that 
supplies it; and that the utility of the 
service is no more or less than an averting 
of the cost-impairment incident to surmounting 
this hindrance. Hence, if it is our purpose to 
arrive at a unit of value, it would be desirable 
to examine whether we can obtain a unit based 
on objective hindrances. Without such a unit 
there would be obvious inconvenience. If we 
were to try to ascertain the relation which the 
hindrance to be surmounted in the acquisition 
of each one of a hundred different products 
bears to that of all the others, it would involve 
the determination of an enormous number of 
separate and distinct ratios. It is evident, 
therefore, that the task attendant upon deter- 
mining the ratios between the hindrance not of a 
hundred, but of thousands of products, would 
be incalculable. 

It is to be observed, also, that these difficulties 
would be enormously aggravated by frequent 

141 



142 TRUE NATURE OF VALUE 

changes in conditions of environment, and by 
the introduction of more effective capital, 
either of which might operate to effect changes 
in the relative gravities of hindrances, and con- 
sequently in the ratios of exchange between the 
products that result from surmounting these hin- 
drances. Consequently, each and every change 
in the difficulty of attainment would result in a 
change in the ratio of exchange between them. 
For this reason, the ratios of yesterday are not the 
ratios of today; nor will the ratios of today be 
those of tomorrow; and, if the exchanges are to 
be made upon an equitable basis of equivalence 
of hindrances surmounted, there would be an 
incessant demand for an intelligent revision of 
all these ratios — a demand which it would be 
almost impossible to meet. But these incon- 
veniences are not all. Besides the shifting 
ratios of exchange due to a multiplicity of hin- 
drances, should be added those arising from wide 
differences in the character or nature of those 
hindrances. So widely different are these that 
it is often difficult to find any common ground 
for comparison between them. The imperative 
need of some means for removing these difficul- 
ties is too apparent to need emphasis. 

The most practical, although by no means a 
perfect, relief from the difficulties here encoun- 



MONEY 143 



tered, is to be found in the selection and general 
acceptance of some specific, but typical and 
hypothetically constant, hindrance with the 
gravity of which all, through experience, obser- 
vation, or the testimony of others, may become 
sufficiently familiar to enable them to compre- 
hend its significance when employed as a unit 
or standard of greater or less difficulty of 
attainment. 

The relation of this unit to the exposition 
which has gone before is evident. As is the 
gravity of the obstacles or hindrances encoun- 
tered in the production of a product, such is the 
utility of a service which, by surmounting them, 
supplies it. This being true, it follows that a 
condition precedent to an intelligent conclusion 
relative to the utility of the service that supplies 
the product, is a clear conception of the gravity 
of the hindrances it is necessary to surmount. 
That is to say, there can be no intelligible 
measure of the utility of a service — that which 
one does for another — other than that found in 
the greater or less gravity of the hindrances it has 
been necessary by this service to surmount in 
order to supply the product. 

§ 2. In the minds of most people a unit which 
measures the greater or less hindrance, and the 



144 TRUE NATURE OF VALUE 

unit which measures the value of the product, 
resulting from this effort, are usually inseparably 
associated. So close is this association between 
the tangible task of surmounting it, and the 
product itself, that the product quickly becomes 
the accepted symbol of the difficulty of attain- 
ment, in terms, ratios, or multiples of which 
other difficulties of attainment of every sort may 
be expressed. That is to say, the popular mind 
incorrectly and unconsciously carries over to 
the product, and ascribes to it, as an attribute, 
the qualities of usefulness that in fact attach only 
to the services that are necessary for overcoming 
the hindrances incident to its production. As 
soon as we can conceive of a typical and theoreti- 
cally constant hindrance — or the product that 
through association suggests this hindrance — 
we shall secure an accepted unit, or standard, in 
terms of which the gravity of any given difficulty 
of attainment may be expressed. This standard 
will serve as a common denominator, thereby 
facilitating intelligent comparison between dif 
ficulties of attainment having so little in common 
as to render direct comparison between them 
difficult, if not impossible. 

Thus, if the hindrance attendant upon the 
production of X becomes the accepted unit 
for the measurement and comparison of quanti- 



MONEY 145 



tative hindrances, and if we find that the diffi- 
culty of attainment of Y is the quantitative 
equivalent of the difficulty of attainment of X, 
we unhesitatingly express this idea by saying, 
"Y equals X," or, conversely, "X equals Y," 
although, as a matter of fact, there is absolutely 
nothing in common between the properties of 
these two products. While the character of 
the typical hindrance employed as a unit of 
this sort is seemingly of little importance, it is 
evident that to be sufficiently familiar to be 
intelligible to all, it should suggest such specific 
and theoretically constant difficulties of attain- 
ment as would attend the production of a given 
product under practically changeless conditions 
of environment. 

§ 3. It is customary to regard the employment 
of a unit of this sort as conclusive evidence of 
considerable advancement in economic enlight- 
enment; and doubtless the more highly devel- 
oped the society, the more perfectly adapted 
to its purpose will be the specific product whose 
difficulty of attainment is employed as a unit. 
Nevertheless, so essential is this unit to an in- 
telligent division of labor upon an equitable 
basis that is it difficult to conceive of a self- 
sustaining group, however insignificant numer- 



146 TRUE NATURE OF VALUE 

ically, that would not instinctively resort to the 
employment of some familiar, but typical, unit 
of difficulty of attainment, in terms of which the 
gravity of other and less familiar hindrances 
might be expressed, and by means of which 
quantitative comparisons between them might 
be made. 

This operation might be illustrated from the 
instances hitherto employed. For example, it 
might be supposed that every member of a 
community is compelled to secure his daily 
supply of one bucket of water from a spring one 
mile distant, and that the average weight of his 
burden is, say, twenty pounds. The hindrance 
to be surmounted in producing this water in- 
volves a walk of one mile and return, bearing the 
above-mentioned burden. This hindrance in- 
cludes the qualities necessary to render it an 
acceptable standard of other difficulties of attain- 
ment. Two of these qualities it would have in a 
high degree, namely, invariability and familiarity. 
These alone would render it acceptable as a 
standard, or common denominator, in terms of 
which the gravities of all other hindrances 
might be expressed, and the ratios between them 
intelligently determined. Clearly, it is a matter 
of little importance what specific hindrance is 
selected as a standard in which concepts of 



MONEY 147 



hindrances are expressed, so long as that hin- 
drance, or the product that suggests it, is suffi- 
ciently familiar to serve as a means of conveying 
to the minds of all, a clear and distinct concep- 
tion of the greater or less gravity of the hindrance 
in question. 

§ 4. The application of the above principles 
to the use of a concrete form of money is simple. 
Any form of coined money is a specific product, 
the greater or less difficulty of attainment of 
which, being supposed for the time being to 
be constant, finally becomes familiar to all. 
Thus it becomes fitted for employment as a 
common standard, in terms of which, not only 
hindrances of every sort, but also the greater 
or less utility of the services that surmount 
these hindrances, may be expressed and com- 
pared. Whenever a sum of money is accepted 
as compensation for a service that surmounts 
a hindrance, it shows that the hindrance in 
producing the article is the equivalent of the 
hindrance necessary to be overcome in the 
production of the metal from which the coin 
is struck. When this acceptance of money is 
well-nigh universal, it imparts to it a currency, 
because it furnishes a means of making com- 
pensation for an equivalent service. This 



148 TRUE NATURE OF VALUE 

currency gives it a utility to the possessor quite 
distinct from the utility of the metal from 
which it was coined. 

Almost any familiar product, the constancy 
of whose difficulty of attainment is measurably 
assured, might perform the very important 
function of a standard of difficulty of attainment, 
and consequently of exchange value, or of the 
utility of the service that surmounts this difficulty 
of attainment. However, it is evident that, to 
perform satisfactorily all the functions of money, 
it must have qualities other than mere steadfast- 
ness in difficulty of attainment. The experience 
of centuries seems to have demonstrated the 
marked superiority of the so-called precious 
metals, gold and silver, for this purpose. The 
employment of two different products as a 
standard, however, is likely to furnish difficul- 
ties. If there is no necessary relation between 
the hindrances of these two products, it is 
possible that temporarily they might become 
equivalents at a given ratio of exchange; but 
there is no reason to suppose that this relation 
could be maintained. There is thus an obvious 
difficulty necessarily attendant upon the attempt 
to force a constant relation in the qualities of 
two things, that are independently variable, each 
from the other. 



MONEY 149 



§ 5. Thus we are led to see that money is 
primarily a standard of the hindrances of other 
commodities; that is to say, it is an accepted 
unit of the greater or less gravity of the obstacles 
and hindrances, that constitute economic diffi- 
culty of attainment. That is, the money repre- 
sents, and in a certain sense embodies, the 
obstacles encountered in the production of the 
money-product. As such, it becomes readily, 
indeed we might say instinctively, the accepted 
standard in terms of which the utility of a 
service that surmounts an equivalent difficulty 
of attainment is most intelligibly expressed. 

Since the sole function of a service is to sur- 
mount the obstacles that make up difficulty of 
attainment, and since the greater or less utility 
of the service varies absolutely with the extent 
of that which is surmounted, the perfect adapta- 
bility of a unit of hindrance for employment as a 
unit of exchange value, or for the utility of the 
service, is apparent. Not only is the unit of 
difficulty of attainment perfectly adaptable for 
employment as a unit for measuring the utility 
of a service, or of exchange value, but it is diffi- 
cult to conceive of any other means, or device 
whereby intelligible expression can be given to 
concepts of this sort. Indeed, it may be said 
that but for the fact that the money unit is, 



150 TRUE NATURE OF VALUE 

first of all, a standard of hindrance it could not 
be intelligently employed as a suitable unit for 
giving intelligent expression to changes in 
exchange value. In other words, it must be a 
unit in terms of which the utility of a service 
that surmounts the hindrance it stands for may 
be expressed. 

We may now accept the conclusion that the 
primary function of money is to serve as a stand- 
ard of greater or less difficulty of attainment. 
In multiples of this familiar unit, we convey to 
the mind of another the extent of any difficulty 
of attainment known to us, howsoever unfamiliar 
it may be to him. By reducing hindrances of 
the most diverse character to this common 
denominator of hindrances, the ratios between 
them are readily ascertained. 

We will recall that the utility of a service that 
surmounts a given difficulty of attainment is 
wholly contingent upon that difficulty of attain- 
ment; and is only limited by the utility of the 
product. We now have a familiar and assumedly 
constant unit of such difficulty of attainment. 
Such a unit, in the form of money, has by a 
well-nigh universal consent been accepted and 
adopted as the standard best fitted for use as a 
means of giving intelligent expression to con- 
cepts of value. Furthermore, since the^metal 



MONEY 151 



from which the unit is coined is essential to the 
coined unit, the mere existence of this coin affords 
conclusive evidence of the greater or less utility 
of a service that supplies it. 

Since the gravity of the difficulty of attainment 
which must be overcome, and consequently the 
utility of a service that surmounts it, is wholly 
contingent upon the quantity and quality of the 
metal — usually one of the precious metals — 
embodied in the coin, the task of accurately 
determining and certifying to its weight and 
fineness is usually undertaken by the represen- 
tative of all of us, namely, the state. As evi- 
dence of the standard quantity and quality of 
the metal in each coin, the seal of the state is 
affixed, and other precautionary measures are 
taken to guard against its being tampered with, 
for if, by the veriest fraction, it is reduced in 
either quantity or quality below a certain arbi- 
trary limit of tolerance, it instantly ceases to be 
that which on its face it purports to be ; it is no 
longer even a legal equivalent of the difficulty 
of attainment, and consequently of the value of 
the service, which its denomination indicates. 

Finally, some writers 1 wrongly regard as 
inherent properties of a product (such as money) 
the utility of the service that surmounts the 

1 J. B. Clark, op. cit., p. 79. 



152 TRUE NATURE OF VALUE 

difficulty of attainment of this product. The 
error of this position is shown by the fact that 
the utility of money as a means of making com- 
pensation for services rendered, remains unim- 
paired, even though the money-product (as for 
example, a legal-tender note) has no inherent 
qualities to which utility can be attached. 

§ 6. Clearly enough it is only by comparison 
that we are able to convey to the mind of another 
a concept of the quantitative gravity of a given 
hindrance, as it lies in our' own mind. Thus, we 
may say, the gravity of a given hindrance equals, 
or bears a certain relation to, the gravity of 
certain other hindrances with the gravities of 
which he is supposedly familiar. If his capacity 
to surmount the hindrances cited for comparison 
is on a perfect parity with our own — which is in 
the highest degree improbable — then, and then 
only, will we succeed in accurately conveying 
to the mind of another a true conception of the 
quantitative gravity of the hindrance in question, 
as it lies in our own. Thus it is that, in the 
absence of an acceptable hindrance-unit, a 
necessary preliminary to every contemplated 
exchange would be an effort to reach a mutually 
satisfactory agreement, by means of a direct 
comparison between the quantitative gravities 



MONEY 153 



of the two hindrances involved ; this would be a 
task that, in the event of a wide difference in their 
characters, would be beset with many difficulties. 
With the normal man available for reference 
as to the relative gravities of hindrances, it seems 
more than probable that, as a means of avoiding 
the inconveniences attendant upon the constantly 
recurring necessity for determining the quantita- 
tive ratios between the gravities of a multiplicity 
of hindrances, society would be quick to seek 
the relief afforded by the comparatively simple 
expedient of selecting some familiar, but specific 
and typical hindrance, whose quantitative 
gravity as revealed by the cost to the normal man, 
would be known to all. A hindrance of this sort 
once agreed upon, would find instant employ- 
ment as a unit, or standard, in terms, multiples, 
and ratios of which the quantitative gravity of 
objective hindrance of every sort and character 
could be readily expressed and as readily under- 
stood by all. While in the nature of the case 
it will be difficult, if not impossible, to secure 
absolute constancy in the gravity of the hindrance- 
unit, this is not a matter of importance in deter- 
mining the relative gravities of any two or more 
hindrances at any given time and place, when 
it must bear the same quantitative relation to 
one hindrance that it does to others. 



154 TRUE NATURE OF VALUE 

So inseparably associated with the hindrance- 
unit is the product, which is or may be the only 
tangible result of surmounting it, that in time 
the product itself becomes the accepted symbol, 
in terms of which the hindrance-unit, or its 
quantitative gravity, is commonly expressed. 
That this unit would be equally well adapted for 
employment as a means of giving intelligible 
expression to normal or competitive cost-rela- 
tions is apparent, since their relation to the 
gravities of objective hindrances is always 
constant. No less perfectly adapted would be 
this unit, or the product which is its symbol, 
for employment as a unit or standard of value. 
For, as is the quantitative gravity of a hindrance, 
such, in the very nature of the case, must be the 
quantitative utility of the service which, by 
surmounting it averts the cost-impairment that 
otherwise must have attended the production or 
acquisition of the needful product. Service- 
utility, that is, the utility of the service which 
by surmounting the objective hindrances inci- 
dent to the rendering available, or production, 
of a needful product, is identical with that form 
or variety of utility, that, as Professor Clark has 
so ably pointed out, "cannot be dissociated from 
value." 2 The truth of this should now be 

2 Op. cit., p. 73. 



MONEY 155 



readily apparent to all who have had the patience 
to follow this discussion. 

That our typical and representative hindrance- 
unit, in terms of which the gravities of hin- 
drances of every sort may be intelligently ex- 
pressed, would be perfectly adapted to perform 
many of the most important functions of money, 
becomes apparent when we reflect that " normal 
cost," which, as has been seen, is wholly con- 
tingent upon the quantitative gravity of objec- 
tive hindrances, is the only rational basis of that 
service-utility, which, in its last analysis, gives 
value. Without stopping to discuss the matter 
further, it may be said that but for the fact that 
the money unit is, first of all a unit or standard 
of the quantitative gravity of the hindrance 
to be surmounted in producing the metal from 
which it is coined, it could not serve as a 
quantitative unit of the utility of the service that 
surmounts the hindrance of the metal. 

Primarily, then, the money unit is a standard 
of objective hindrance. As such a unit it neces- 
sarily varies directly with the gravity of the 
hindrance it represents. If a hindrance to be 
surmounted in the production of the metal from 
which a coin is struck increases in gravity, the 
value of the coin — meaning thereby the utility 
of the service that supplies it — must proportion- 



156 TRUE NATURE OF VALUE 

ately appreciate. If its gravity decreases, the 
value of the coin must proportionately depreciate. 
This law is as irrevocable as the traditional law 
of the Medes and Persians. A perfect compre- 
hension of its operation makes clear the insur- 
mountable difficulties attendant upon the main- 
tenance of the double money standard, as before 
observed, which would necessarily involve the 
maintenance of fixed and unvarying relation be- 
tween two independently variable hindrances. 

But, in view of the fact that the normal man 
is largely an abstract conception, where are we 
to look for data so authoritative that, in the face 
of conflicting interests, the parties to a contem- 
plated exchange of product for product will be 
enabled on a basis of equivalence in the hin- 
drances, to reach a mutually satisfactory agree- 
ment as to a true quantitative relation between 
these hindrances ? Our reply is, that society 
through free competition has given us a better 
means than the normal man. Not only does free 
competition, through " competitive cost," afford 
the requisite data, but it commands the accept- 
ance of its decrees by enforcing the penalty of 
loss upon all who refuse or neglect to observe 
them. Under free competition, each individual for 
himself makes voluntary choice of the character 
of the hindrances against which his productive 



MONEY 157 



energies shall be directed. If he errs in judg- 
ment, he pays the penalty in loss ; if he chooses 
rightly, he reaps his reward in profit. By cul- 
tivating his capacity in a given direction, it be- 
comes relatively high, not only when compared 
with his own capacity for other things, but as 
well when compared with the capacities of his 
associates to surmount the same or equivalent 
hindrances. 

While it is not reasonable to suppose that an 
intelligent being will purposely lower his capaci- 
ties in any direction for the apparent increase in 
profit which might accrue, each will find it the 
course of wisdom to cultivate his capacity to 
the utmost limit in the vocation of his choice. 
As a consequence, the productive capacity 
of society as a whole would be raised to the 
highest level. Under free competition " com- 
petitive cost" is the final arbiter of the relative 
gravities of hindrances. As the productive capa- 
cities of society as a whole improve, the relative 
gravity of hindrances proportionately decreases. 



METALLIC AND PAPER MONEY 



CHAPTER XIII 
METALLIC AND PAPER MONEY 

§ i. Primarily money, as has been shown, is a 
unit, or standard, of quantitative hindrance. In 
other words, it is a commonly accepted unit of the 
quantitative gravity of the objective hindrances 
that constitute economic price. As is the gravity 
of the obstacles encountered in the production of 
that which constitutes the money unit, such, in 
the nature of the case, is the quantitative gravity 
of the price-hindrance the money unit represents, 
and in a certain sense embodies. As a familiar 
unit of quantitative price-hindrance it is per- 
fectly adapted to, and readily becomes, the ac- 
cepted unit or standard, in terms of which the 
utility of a service that surmounts its own or 
equivalent hindrances is most intelligibly, and 
therefore most conveniently, expressed. 

Since the sole function of a service is to sur- 
mount the objective hindrances that constitute 
economic price-hindrance; and since the quan- 
titative utility of a service that surmounts it is 
wholly contingent upon the gravity of the obsta- 
cles surmounted, the perfect adaptedness of the 
unit of price-hindrance for employment as a unit 
of service-utility, or value, becomes readily ap- 

161 



1 62 TRUE NATURE OF VALUE 

parent. Not only is the unit of price-hindrance 
perfectly adapted for employment as a unit of 
quantitative value or service-utility, but it is 
difficult to conceive of any other device whereby 
intelligent expression can be given to concepts of 
this sort. Indeed it may be said, that, but for the 
fact that the money unit is, first of all, a standard 
of price-hindrance, it could not be intelligently 
employed as a quantitative unit or standard of 
service-utility, or value. That is to say, it could 
not become the commonly accepted unit, or 
quantitative standard, in terms, ratios, and 
multiples of which the utilities of services that 
surmount objective hindrances of every sort 
and character could be intelligibly expressed. 
Quantitative hindrances expressed in terms of 
money is, in general economic usage, termed 
Price. 

As is the quantitative gravity of the objective 
hindrances which it is necessary to surmount in 
order to render a needful product available for 
use, such, in the nature of the case, must be the 
value, or utility of the service that surmounts 
them. To know the utility of a service, which, 
by surmounting the price-hindrance of any given 
product, renders it available for consumption or 
exchange, it is essential to know the gravity of 
the specific hindrance upon which the service 



METALLIC AND PAPER MONEY 163 

is based. In the absence of information upon 
this point, we shall be without intelligent data 
upon which to base a rational conclusion as to 
that which by universal custom is termed the 
" value" of the product under consideration. 
That is to say, there can be no intelligible mea- 
sure of that service-utility (which in its last 
analysis is value) other than that found in the 
quantitative gravity of the objective-hindrances 
such service must surmount in rendering a 
needful product available for consumption, or 
exchange. 

Money is some specific product, the quanti- 
tative gravity of whose hindrances, being re- 
garded as substantially constant, becomes in 
time measurably familiar to all, if not through 
actual experience in surmounting them at least 
through familiarity with its quantitative relation 
to other hindrances in the open market. It is 
thus perfectly adapted for employment as a 
unit, or standard, in terms of which, not only 
the gravities of price-hindrances of every sort 
but the utilities of services that surmount them, 
may be expressed and understood. 

The fact of the well-nigh universal acceptance, 
or currency, of money as compensation for 
services that surmount other but equivalent 
hindrances, imparts to it a utility as a medium 



1 64 TRUE NATURE OF VALUE 

of exchange, quite apart from the utility of its 
properties or qualities for other purposes. 

§ 2. In every discussion of the money question 
it is convenient, but confusing, to mix up two 
things that ought to be kept separate: (i) The 
amount of utility, which, having its origin in, 
by right attaches only to, the service that has 
rendered the product available for use, or ex- 
change, and (2) the utility of the product itself ; 
and the former ought not to be transferred to 
the latter. Because it has been, time out 
of mind, convenient to assign the utility of the 
service to the product itself, the confusion above 
described is a natural result. So obscured by 
the antiquity and the universality of this prac- 
tice of treating value as an inherent property 
of needful products has the subject become, that 
society seems long since to have lost sight of 
both the origin and the true significance of the 
phenomena which the term suggests. 

Thus, to the present day, the chief argument 
advanced in advocacy of metallic or coined 
money over an authoritative promise to pay 
metallic money is based upon the assumption 
that that most mysterious but evanescent fluid, 
value, actually inheres in the metallic money, 
while the promise to pay is at best but an author- 



METALLIC AND PAPER MONEY 165 

itative declaration, or fiat, of inherency, which in 
the nature of things cannot exist. So, too, in the 
present-day discussion of the relative values of 
gold and silver coins, we are gravely informed by 
politicians, legislators and administrators of high 
and low degree, that the " inherent value " of the 
gold dollar is (approximately) double that of the 
silver dollar; and, if asked to explain the cause 
of this apparent anomaly, they will gravely 
inform us, that it is due to the fact that the 
" inherent value" of the metal from which the 
gold coins are struck is double that of the metal 
in the silver coins of the same denomination; 
or, if they wish to be extremely accurate, they 
will inform us that the " intrinsic value" of 
23.22 grains of pure gold is double the 
" intrinsic value" of 371.25 grains of pure 
silver. 



§ 3. The utter absurdity of the contention that 
value "inheres in," and is therefore a permanent 
and abiding quality of the precious metals, or 
that it is "intrinsic" and pertains to the very 
nature of the gold, or the silver, from which at 
the present day nearly all coins are struck, be- 
comes apparent when we reflect upon the daily, 
even hourly, fluctuations in their relative values 
in the open markets of the world, wherein is 



1 66 TRUE NATURE OF VALUE 

found the final test of the relative values of all 
products. Indeed to argue that value "in- 
heres in, " or is an intrinsic property of, gold and 
silver, is to contend that the very natures of these 
products have undergone a most remarkable 
change since 1871. Thus for upward of 40 
years prior to that time, the 412.5 grains of silver 
of standard ( T V) fineness, had slightly greater 
value in the coinage, than 25.8 grains of gold 
of equal fineness. As a consequence, and in 
accordance with the law governing such matters, 
as formulated by Sir Thomas Gresham, the 
possessor of silver bullion, having found that it 
had greater utility for other purposes than it had 
as money, knew it would be to his disadvantage 
to employ it as money. As a consequence, 
silver coins, which, during this period com- 
manded a premium for employment as bullion, 
were withdrawn from circulation. 

But where are we to look for an explanation 
of this most radical change in what is termed 
the relative values of these two metals, whose 
" inherent" and " intrinsic" properties, must in 
the nature of things have been the same in 1896, 
as they were during the period from 1832 to 
187 1 ? The answer is found in the fact that so 
radical were the changes that had taken place 
in the conditions that determine the relative grav- 



METALLIC AND PAPER MONEY 167 

ities of the competitive hindrances 3 necessary to 
be surmounted in ministering to the demand 
for these two metals, that in 1896 the gravity 
of the greatest hindrance it was necessary to 
surmount, in order to supply 412.5 grains of 
standard silver, was approximately but one-half 
as great as that attendant upon supplying 25.8 
grains of standard gold. It seems a self-evident 
proposition, that under such conditions the 
utility of a service which, by surmounting the 
objective hindrances incident to rendering the 
required amount of gold available for coinage, 
must be double that attendant upon rendering 
the requisite amount of silver available for a like 
purpose. The utter absurdity of the supposi- 
tion that these changes in the conditions attend- 
ant upon the production of these two metals, 
could operate to effect changes in their real 
natures, or in their elementary properties, is too 
ridiculous for serious consideration. 

§ 4. Much, if not all, the confusion attendant 
upon the discussion of the money question dur- 
ing the last half-century, if not for all time, has 
arisen from the confirmed practice of carrying 

3 By "competitive hindrance "is meant, as previously explained, 
the greatest hindrance necessary to be surmounted in order to 
meet the demand for a given product at the existing ratio of ex- 
change between it and other products in the open market. 



1 68 TRUE NATURE OF VALUE 

over to the product as an inherent property of 
the metallic coin so much of usefulness as equals 
the utility of a service that, by surmounting the 
objective hindrances attendant upon its acquisi- 
tion, has rendered it directly available for coin- 
age. As is the quantitative gravity oj the com- 
petitive hindrance surmounted in the production — 
or rendering available — oj the metal from which 
a piece of money is coined, such, in the very 
nature of the case, is the quantitative gravity of 
the price-hindrance the coin stands for; such, too, 
must be the quantitative utility of the service — 
usually and wrongly treated as an inherent and 
abiding property of the product — which by 
surmounting this price-hindrance renders this 
metal available for coinage. In other words, as 
is the "normal," or "competitive," cost averted 
by supplying this metal, such, in the nature of 
the case, is the utility of a service that, by 
supplying it to another, averts, or relieves him 
from, the necessity of submitting to this cost, 
as a condition of acquiring it. 

Since the quality (or fineness) is of no less 
importance than its quantity, as a factor in de- 
termining the quantitative gravity of the price- 
hindrance which a coin represents, the utmost 
care is exercised in determining both its weight 
and its fineness. By this means, we secure our 



METALLIC AND PAPER MONEY 169 

nearest approach to the practically unattainable 
— a constant and unvarying standard of quanti- 
tative hindrance, as a basis for a like standard 
of that service-utility, which gives value. 

§ 5. To provide against deception and fraud 
through light weight or debasement of the metal 
employed for coinage, the state as the represen- 
tative of all of us, usually assumes the task of 
coining the money units. Under free coinage — 
that is, where the government imposes no 
seigniorage for its services — that which passes 
for the value of the coined unit will be on a 
perfect parity with the value of the bullion from 
which it is coined. 

In the event of a seigniorage charge, however, 
— that is, where the state demands compensa- 
tion for the service it has rendered — the gravity 
of the price-hindrance each coin truly represents 
will exceed the value of the bullion from which it 
is struck by the sum of this charge. As a con- 
sequence, while a seigniorage charge works no 
injustice, it would tend to render it unprofit- 
able for metal workers to resort to even full- 
weight coins for their raw material. 

While the state may very properly determine 
the quantity of the alloy employed in the coinage, 
and arbitrarily give a name to each coin struck, 



170 TRUE NATURE OF VALUE 

it is quite beyond the province of the state, quite 
beyond the province of any ruler, council, or 
legislative body, to fix, or control the value of 
the coined unit. While the name, stamp, or seal 
borne by each coin may usually be accepted as 
conclusive evidence of the exact quantity and 
quality of the metal it contains, its true value is 
absolutely contingent upon the gravity of the 
"competitive hindrance," or hindrance of great- 
est gravity, which it will be necessary to sur- 
mount, in order to maintain the existing relation 
between the demand for and supply of the metal 
from which the coins are struck. 

Though, as has been said, the legend stamped 
upon the coin may usually be accepted as con- 
clusive evidence of the quantity and quality of 
the metal, it is after all but prima facie evidence 
of the original intent. Should actual test reveal 
either debasement of the coin, below the legal 
standard of fineness, or lightness of weight, be- 
low an arbitrary limit of tolerance, the coin 
would be but a pretense of what it proclaimed 
itself to be, and as a consequence a penalty would 
attach to passing it at its face value. On the 
other hand, should the coin have an overweight 
of metal, a most improbable supposition, it 
would be worth proportionately more as 
bullion than as coin. The result would be 



METALLIC AND PAPER MONEY 171 

its immediate conversion into bullion by its 
possessor. 

§ 6. Concerning bimetallism, or the concur- 
rent circulations of coins struck from two dif- 
ferent metals, independently variable as to the 
gravities of their hindrances, this may be said. 
If the competitive hindrance necessary to be 
surmounted in order to render 25.8 grains of 
standard gold available for the coinage of a 
gold dollar is the exact equivalent of the com- 
petitive hindrance necessary to be surmounted 
in order to render 412.5 grains of standard silver 
available for the coinage of a silver dollar, then 
must the gold dollar and the silver dollar repre- 
sent hindrances of equivalent gravity; and this 
being true, each must represent the same unit 
of value, or service-utility. If, however, the 
gravities of these two competitive hindrances 
differ in degree, no power on earth below or in 
Heaven above can make the utility of a service 
that surmounts one of these hindrances the 
equivalent of that which surmounts the other of 
them. Furthermore, lacking equivalence in 
value they cannot freely circulate side by 
side at their face value. That is to say, in 
accordance with Gresham's Law, the money 
of greatest value will be withdrawn from 



172 TRUE NATURE OF VALUE 

circulation as money, and disposed of as 
bullion. 

The concurrent circulation of subsidiary 
coins, or token money, side by side with coins of 
greater value, far from discrediting the universal 
applicability of Gresham's Law, serves to con- 
firm it. As experience has shown, it is only 
through a governmental monopoly of the right 
to issue coins of this character, that they are pre- 
vented from usurping the field as a money of 
account, since the full-weight standard coins 
would bring a premium in the depreciated money 
as bullion. 

The 412.5-grain silver dollar of our coinage is 
a case in point. Though originally intended 
for no such ignoble purposes, the unparalleled 
reduction in the relative gravity of the competi- 
tive price-hindrance necessary to be surmounted 
— as compared with gold — in order to meet the 
demand for the silver from which it is coined, 
it has so fallen from its former high estate that, 
in order to prevent its driving gold from the field 
as the money of account, the state has arbitrar- 
ily restricted its volume to the demands of trade 
for minor transactions. In short, the " dollar 
of our fathers" is no longer a standard of value 
(based upon the gravity of the objective hin- 
drances it is necessary to surmount in order to 



METALLIC AND PAPER MONEY 173 

supply the metal from which it is coined), but 
it is a subsidiary coin, chiefly useful as a means 
of conducting small transactions. In passing, 
it may be added that, owing to popular mis- 
conception as to the character and nature 
of the phenomena of value, this dollar is a 
serious menace to the financial honor of the 
nation. 

§ 7. Concerning paper money, so called, which 
at best is but a more or less authoritative, but 
conditional, promise to pay money at some 
future time, but little need be said. Except in 
the dignity, and power of the promissor, the 
promise of a state to pay money, differs in no 
essential respect from a like promise by the 
humblest of its subjects. 

It should need no labored argument to con- 
vince one of the most ordinary intelligence, that 
the promise to render a service at some future 
time is not, and in the very nature of the case can- 
not be, the ultimate and final fulfilment of that 
promise. No more should it be difficult to 
persuade him that the most dignified and author- 
itative promise to pay money, is not the actual 
money promised. True, the promise may be as 
"good as money" to him who is compelled to 
accept it ; indeed it is not difficult to conceive of 



174 TRUE NATURE OF VALUE 

conditions under which it may be so much more 
convenient to transport than the money prom- 
ised, as to command a premium proportionate 
thereto. But under no conditions can it be 
truly regarded as the perfect fruition of the 
promise. Since the bit of paper upon which the 
promise is stamped truly represents no propor- 
tionate hindrance surmounted, and since of 
itself it has not that utility which passes for its 
value (meaning thereby its compensatory power 
in exchange), such paper rests upon faith in the 
ultimate fulfilment of the promise. 

A case in point is found in the so-called 
"greenback" issue with which all in this country 
are familiar. While at the present time no one 
seems to doubt the ability, or the intention, of 
the state to meet its promises to pay the coin 
stipulated in its notes on demand, it is not 
difficult for those of us who have reached 
advanced years to recall the time when the 
credit of the state — faith in both its ability and its 
intention to keep its promises — was at such low 
ebb, that it required almost three of its " prom- 
ises-to-pay" one dollar to purchase a single gold 
coin of that denomination, or the metal from 
which it was struck ; and it took even a fraction 
more to purchase the silver "dollar of our fath- 
ers," or its metallic content. 



METALLIC AND PAPER MONEY 175 

§ 8. By an arbitrary, but as experience has 
abundantly shown, an unwise exercise of its 
powers, the state can unfortunately compel its 
creditors — those who, having rendered it a stipu- 
lated service, are justly entitled to demand 
therefor the compensation stipulated — to ac- 
cept its promise to render this service, at its own 
convenience in the place of the actual rendition of 
the service stipulated. To mitigate, or in some 
measure to relieve its creditors from, the hardships 
imposed upon them by this exercise of its con- 
fiscatory powers, as well as to provide for future 
contingencies, the state may, and does, make it 
compulsory upon the part of all its subjects to 
accept tenders of these promises-to-render-a- 
service as full and ample compensation for 
every service heretofore rendered. The injus- 
tice that as a rule follows in the train of the state's 
resort to such extreme measures as a means of 
meeting financial difficulites is surpassed only 
by its unwisdom. Although it is not permitted 
the subject-creditor to deny that the state's 
promise to supply in the future the stipulated 
hindrance-bearing product is the product prom- 
ised, it is quite beyond the power of the state 
to deprive him of the right to place such estimate 
as may commend itself to his judgment upon the 
compensatory power of this promise to render 



176 TRUE NATURE OF VALUE 

future services. As a consequence he may, and 
will, demand not only such increased compen- 
sation for future services as will in his judgment 
make ample compensation therefor, but he will add 
thereto a sum sufficient to insure himself against 
loss from further depreciation in the market value 
of these promises. That is to say, he will add to 
that which under normal conditions would have 
been an equitable compensation for his service, a 
sum fully sufficient, or even more than sufficient, 
to cover any probable depreciation arising from 
delay in or uncertainty as to the ultimate ful- 
filment of these promises. An exercise of this 
clearly unpreventable right, by that which at 
the time may seem an insignificant minority of 
its people, marks the inevitable beginning of an 
era of depreciation. And yet this paper, since 
it is a legal tender for obligations incurred, 
quickly becomes the current money unit of 
exchange in terms, ratios and multiples of which 
the relative market values of products of every 
sort and kind are most commonly expressed 
and understood. 

An inherent weakness of every form of fiatism 
is found in the utter inability of the state to 
regulate, much less control, the estimates its 
subjects will put upon the compensatory power 
of its promises. For though, as we have seen, 



METALLIC AND PAPER MONEY 177 

it can make its promises to pay a coined dollar 
a legal tender for the actual payment of an 
existing claim for that coin, it is powerless to 
control the estimate its subjects will put upon 
these promises as compensation for services yet 
unrendered. 

The most fruitful sources of depreciation in the 
compensatory power of the state's promises and, 
incidentally, a justification of those whose action 
promotes that end, are found not only in the 
inconvenience that may result from waiting upon 
their fulfilment, but also in the lack of confidence 
in either its ability or its intention to do so. 
While the depreciation from the first-named 
cause should not be great, the slightest suspicion 
of the latter may, and probably will, quickly 
result in popular repudiation of these promises, 
as an unreliable and unsafe medium for the 
transaction of business. 

The first symptom of depreciation in a legal- 
tender circulation, consisting of the state's 
promises to pay money, is the steady withdrawal 
of real money from the channels of trade. This 
is quickly followed by a permium on coin as 
expressed in terms of the discredited, and there- 
fore depreciated, promise-to-pay money. 

When once an era of depreciation has set in, 
there is but one infallible method by which the 



178 TRUE NATURE OF VALUE 

extent of depreciation can be determined, and 
that is found by a direct comparison between 
the state's promise to pay the coin unit — say, one 
dollar — and the actual coined dollar promised. 
If in the open market the latter commands a 
premium — in terms of the depreciated circulating 
medium — it must be accepted as final and con- 
clusive evidence, not of an increase in the com- 
pensatory power of the coined dollar, but of a 
depreciation in the compensatory power of the 
state's promise to pay a coined dollar. For ex- 
ample, if the market value of a coined dollar 
is $1.10 in terms of the state's promise to pay 
one coined dollar, it is a self-evident proposi- 
tion that the value of the coined dollar is the 
equivalent of the state's promise to pay one 
dollar and ten cents ($1.10). 



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